CHAPTER XII: THE HUMAN LAW OF
DISTRIBUTION

§1. In seeking at once to establish and apply to industry a standard of human value, we have taken for our concrete subject-matter the aggregate of marketable goods and services that constitute the real income of the nation. This real wealth, distributed in income among the various members of the community, we subjected to a double analysis, tracing it backwards through the processes of its production, forward into its consumption. Some of the activities of its production we recognised as being in themselves interesting, pleasant, educative or otherwise organically useful: others we found to be uninteresting, painful, depressing or otherwise organically costly. A similar divergence of human value appeared in the consumption of those forms of wealth. Some sorts and quantities of consumption were found conducive to the maintenance and furtherance of healthy life, both pleasant and profitable. Other sorts and qualities of consumption were found wasteful or injurious to the life of the consumers and of the community.
The general result of this double analysis may be summarised in the following tabular form.

WEALTH

PRODUCTION
Human utility -- Art & Exercise; Labour
Human cost -- Toil; Mal-production

CONSUMPTION
Human utility -- Needs; Abundance
Human cost -- Satiety; Mal-consumption

In the ordinary economic account 'costs' appear entirely on the Production side of the account, 'utility' entirely on the Consumption side. Production is regarded not as good or desirable in itself, but only as a means towards an end, Consumption. On the other hand, all parts of Consumption are regarded as in themselves desirable and good, and are assessed as Utilities according to the worth which current desires, expressed in purchasing power, set upon them.
Our human valuation refuses to regard work as a mere means to consumption. It finds life and welfare in the healthy functioning of productive activities, as well as in the processes of repair and growth which form sound consumption.
If all production could be reduced to Art and Exercise, the creative and the re-creative functions, all consumption to the satisfaction of physical and spiritual needs, we should appear to have reached an ideal economy, in which there would be no human costs and a maximum amount of human utility. The conditions of a complete individual life would seem to be attained. But we are not concerned with a society in which completeness of the individual life is the sole end, but with a society in which the desires, purposes and welfare of the individuals are comprised in the achievement of a common life. For this reason I have included under the head of Utility on the Productive side of our account, not only the Art and Exercise which are directly conducive to individual well-being, but a quantum of Labour which represents the economic measure of the inter-dependency, or solidarity, of the so-called individuals. Such labour is the so-called 'sacrifice' required of 'individuals' in the interest of the society to which they belong. To the individualist it appears a distortion of the free full development of his nature, an interference with his perfect life. But it is, of course, neither sacrifice nor distortion. For the so-called individual is nowise, except in physical structure,1 completely divided from his fellows. He is a social being and this social nature demands recognition and expression in economic processes. It requires him to engage in some special work which has for its direct end the welfare of society, in addition to the work of using his own powers for his own personal ends. How far this routine labour for society can be taken into his conception of his human nature, and so become a source of personal satisfaction, is a question we shall discuss later on. At present it will suffice to recognise that each man's fair contribution to the routine labour of the world, though irksome to him, is not injurious but serviceable to his 'human' nature. Thus interpreted, it stands on the utility, not on the cost, side of the account. It must be distinguished from its excess, which we here term 'toil', and from work, which whether from an abuse of the creative faculty or of social control, is bad and degrading in its nature and is here termed mal-production.
A similar distinction between the narrowly personal and the broader social interpretation of welfare is applicable on the consumption side. It is clearly not enough that the income which is to furnish consumption should suffice only to make provision for the satisfaction of the material and spiritual needs of the individual or even of his family. The expenditure of every man should contain a margin -- which I here call 'abundance' -- from which he may contribute voluntarily to the good of others. There will be public needs or emergencies, which are not properly covered by State services but remain a call upon the public spirit of persons of discernment and humanity. There are also the calls of hospitality and comradeship, and the wider claim of charity, the willing help to those in need, a charity that is spontaneous, not organised, that degrades neither him who gives nor him who receives, because it is the natural expression of a spirit of human brotherhood. For the sting alike of condescension and of degradation would be removed from charity, when both parties feel that such acts of giving are an agreeable expression of a spirit of fellowship. From the consumption which is thus applied to the satisfaction of sound personal needs, or which overflows in 'abundance' to meet the needs of others, we distinguish sharply that excessive quantity of consumption, which in our Table ranks as 'Satiety', and those base modes of consumption which in their poisonous reactions on personal and social welfare strictly correspond to the base forms of production.
§ 2. Such are the general lines of demarcation between the strictly business and the human valuation of the productive and consumptive processes. We now perceive how close is the resemblance of the laws of human valuation as applied to the two sides of the equation of Wealth. This similarity is, of course, no chance coincidence: it inheres in the organic nature of society and of individual life. But, in order to proceed with our main purpose, the expression of the economic income in terms of human income, we must bring the two sides of the enquiry into closer union. We can thus get a fair survey of the current life of industry from the standpoint of wealth and waste, health and disease. So far as our national income, the £2,000,000,000 of goods and services, are produced by activities, which in their nature and distribution can be classed as Art, Exercise and Social Labour, and are consumed in ways conducive to the satisfaction of individual and social Needs, our industrial society is sound.
Probably the greater part of our income is thus made and spent. The necessity of attending more closely to the defects than to the successes of the present system must not lead us to disparage the latter.
If industry were in fact the irrational, unjust and utterly inhuman anarchy it is sometimes represented to be, it would not hold together for twenty-four hours. Not merely is the individual business in its normal state a finely adjusted, accurately-working complex of human skill, industry and cooperative good-will, but the larger and less centralised structures, which we call trades and markets, show a wonderful intricacy of order in their form and working. To feed the thousands of mills and workshops of England with a fairly regular supply of countless materials drawn from the wide world, to feed the millions of mouths of our people with their regular supply of daily food, are notable achievements of industrial order. In concentrating, as we must, our chief thought upon the disorder of the system, the places where it fails, and the damage of such failure, we gain nothing by exaggerating the industrial maladies and their social injuries.
The proportions of order and disorder, health and disease, human cost and human utility, in the working of our industrial system are best ascertained by turning once more to our concrete mass of wealth, our income, and enquiring into the quantitative method of its distribution.
In examining the human costs involved in a given output of labour-power (and of other productive energy) we recognised that very much depended upon the conditions of that output, and particularly upon the length and intensity of the working-day and working-week.
Similarly, in examining the human utility got from the consumption of a given quantity of goods, we recognised that it will depend upon the sort and the number of persons who receive it for consumption.
So from both sides of the question we approach the central issue of the distribution of Wealth.
If the £2,000,000,000 of goods were found to be so distributed in the modes of their production as to involve no burden of toil and no injury upon the producers, while they were so distributed in income as to involve no waste or damage in consumption, the human utility it represented would reach a maximum and cost would be zero.
If, on the other hand, the same goods were largely produced by ill-nourished labourers, working long hours under bad hygienic conditions, and using capital largely furnished by the painful and injurious saving of the poor, while the distribution of the goods was such as to assign the bulk of them to a small affluent class, the masses living on a bare subsistence level, the human utility of such a system would be very small, its human cost very great. Judged indeed from any right standard of civilisation, an industrial society of the latter sort might represent a minus quantity of human welfare.
There might even be two nations of equal population and economic income, equally prosperous from the standpoint of statistics of commerce, which nevertheless, by reason of the different apportionment of work and income, stood poles asunder in every true count of human prosperity.
§3. Now the Human Law of Distribution, in its application to industry, aims, as we have seen, to distribute Wealth, in relation to its production on the one hand and its consumption on the other, so as to secure the minimum of Human Costs and the maximum of Human Utility. No bare rule of absolute equality, based upon the doctrine of equal rights, equal powers or equal needs, will conduce to this result. The notion that the claims of justice or humanity would be met by requiring from all persons an equal contribution to the general output of productive energy is manifestly foolish and impracticable. To require the same output of energy from a strong as from a weak man, from an old as from a young, from a woman as from a man, to ignore those actual differences of age, sex, health, strength and skill, would be rejected at once as a preposterous application of human equality. If such an equal output were required, it could only be obtained by an average task which would unduly tax the powers of the weak, and would waste much of the powers of the strong. A similar human economy holds of the provision of capital through saving. To impose saving upon working folk whose income barely maintains the family efficiency, when other folk possess surplus-incomes out of which the socially necessary capital can be provided, is a manifestly wasteful policy. Those who have no true power to save should not be called upon to undergo this 'cost': all saving should come proportionately out of higher incomes where it involves no human sacrifice. Alike, as regards labour and capital, the true social economy is expressed in the principle that each should contribute in accordance with his ability.
It should be similarly evident that exact equality of incomes in money or in goods for all persons is not less wasteful, or less socially injurious. I cannot profess to understand by what reasoning some so-called Socialists defend an ideal order in which every member of society, man, woman and child, should have an absolutely equal share of the general income. The needs of people, their capacity to get utility out of incomes by consuming it, are no more equal than their powers of production. Neither in respect of food, or clothing, or the general material standard of comfort, can any such equality of needs be alleged. To say that a big strong man, giving out a correspondingly large output of energy, needs exactly the same supply of food as a small weakly man, whose output is a third as great, would be as ridiculous as to pretend that a fifty-horse power engine needed no more fuel than a ten-horse power one. Nor will the differences in one set of needs be closely compensated in another. Mankind is not equal in the sense that all persons have the same number of faculties developed, or capable of development, to the same extent, and demanding the same aggregate amount of nutriment. To maintain certain orders of productive efficiency will demand a much larger consumption than to maintain others. Because differences of income and expenditure exist at present which are manifestly unjust and injurious, that is no reason for insisting that all differences are unwarrantable. Equality of opportunity does not imply equality but some inequality of incomes. For opportunity does not consist in the mere presence of something which a man can use, irrespective of his own desires and capacities. A banquet does not present the same amount of opportunity to a full man as to a hungry man, to an invalid as to a robust digestion. £1,000, spent in library equipment for university students, represents far more effective opportunity than the same sum spent on library equipment in a community where few can read or care to read any book worth reading. Equality of opportunity involves the distribution of income according to capacity to use it, and to assume an absolute equality of such capacity is absurd.
It may no doubt be urged that it is difficult to measure individual needs and capacities so as to apply the true organic mode of distribution. This is true and any practical rules for adjusting income, or for distribution of the product, according to needs, will be likely to involve some waste. But that is no reason for adopting a principle of distribution which must involve great waste. However difficult it may be to discover and estimate differences of needs in individuals or classes of men, to ignore all differences insures a maximum of waste. For, assuming, as it does, a single average or standard man, to which type no actual man conforms, it involves a necessary waste in each particular case. Everyone, in a word, would under this mechanical interpretation of equality possess either a larger or a smaller income than he could use. Such a doctrine, though sometimes preached by persons who call themselves socialists, is really a survival of the eighteenth-century doctrine of individual rights, grafted on to a theory of the uniformity of human nature that is contradicted by the entire trend of science.
This levelling doctrine only serves to buttress the existing forms of inequality, by presenting in the guise of reform a spurious equality, the folly and the waste of which are obvious even to the least reflecting of mankind.
§4. Distribution of income according to needs, or ability to use it, does not, indeed, depend for its practical validity upon the application of exact and direct measurements of needs. The limits of any sort of direct measurement even of material needs appear in any discussion of the science of dietetics. But inexact though such science is, it can furnish certain valid reasons for different standards of food in different occupations, and for other discriminations relating to race, age, sex and vigour. What holds of food will also hold of housing, leisure, modes of recreation and intellectual consumption. Nor must it be forgotten that, for expenditure, the family is the true unit. The size and age of the family is certainly a relevant factor in estimating needs, and in any distribution on a needs basis must be taken into account.
Public bodies, and less commonly private forms, in fixing salaries and wages,are consciously guided by such considerations. The idea is to ascertain the sum which will maintain a worker, with or without a family, in accordance with economic efficiency, and having regard to the accepted conventions of the class from which he will be drawn. Having determined this 'proper' salary or wage, they seek to get the best man for the work. It is true that the conventional factor looms so big in this process as often to obscure the natural economy. When it is determined by a municipality that its Town Clerk ought ot have £1500 a year and its dustman 22s. a week, it appears a palpable straining of language to suggest that differences of 'needs' correspond to this descrepancy of pay. For, though it is true that in the existing state of the market for legal ability and experience the town may not be able to get a really good town clerk for less, that state of the legal market is itself the result of artificial restrictions in opportunity of education and of competition, which have no natural basis and which a society versed in sound social economy will alter. But the fact that the existing interpretation of needs is frequently artificial and exaggerated must not lead us to ignore the element of truth embodied in it. The wages of policemen, the real wages of soldiers and sailors, are determined with conscious relation to the needs of able-bodied men engaged in hard physical work, and with some regard to the existence of a wife and family. But I need not labour the point of the difference between the salary and the 'commodity' view of labour. The acceptance among all thoughtful employers of 'the economy of high wages' applied within reasonable limits is itself the plainest testimony to the actuality of the 'needs' basis of income. That unless you pay a man enough to satisfy his needs, you cannot get from him his full power of work, is a proposition which would meet with universal acceptance.
But it will commonly be added that the safest way of measuring needs is by means of output. This output, measured by work-time, or by piece, or by a combination of the two, still remains the general basis of payment. How far is this conformable to our theory of human distribution, according to needs? That there is some conformity will, I think, be easily perceived. If one docker unloads twice as much grain or timber as another docker in the same time, or if one hewer working under the same conditions 'gets' twice as much coal as another, there is a reasonable presumption that the larger actual quantity of labour has taken a good deal more 'out of him'.
Putting the comparison on its barest physical basis, there has been a larger expenditure of tissue and of energy, which must be replaced by a larger consumption of food. A strong man doing much work may not be exerting himself more than a weak man doing little work. But all the same there is some proportion between the respective values of their output of physical energy and their intake of food. This, of course, is a purely Physiological application of our law of human distribution. It applies both to sorts of work and to individual cases in the same sort of work, and constitutes an 'organic' basis for difference of 'class' wages and individual wages. We urge that it is applicable to other factors of consumption than food, and throughout the whole area of production and consumption. But applied as a practical principle for determining distinctions of class or grade payment, and still more for individual payment within a class, it has a very limited validity. Rigorously applied it is the pure 'commodity' view of labour, the antithesis of the 'salary' view which best expresses the 'needs' economy. But, though output cannot be taken as an accurate measure of 'needs' for the purpose of remuneration, it clearly ought to be taken into account. The practical reformer will indeed rightly insist that it must be taken into account. For he will point out that output is a question not merely of physiological but still more of moral stimulus. A strong man will not put out more productive energy than his weaker fellow unless he knows he is to get more pay; a skilful man cannot be relied upon to use his full skill unless he personally gains by doing so. If the sense of social service were stronger than it is, a bonus for extra strength or skill might be unnecessary. But as human nature actually stands, this stimulus to do a 'best' that is better than the average, must be regarded as a moral 'need' to be counted for purposes of remuneration along with the physiological needs. Too much need not be made of this distinctively selfish factor. In many sorts of work, indeed, it may not be large enough to claim recognition in remuneration. But where it is important, the application of our needs economy of distribution must provide for it. This admission does not in the least invalidate our organic law. For the moral nature of a man is as 'natural' as his physical nature. Both are amenable to education, and with education will come changes which will have their just reactions upon the policy of remuneration.
§5. The organic law of distribution in regarding needs will, therefore, take as full an account as it can both of the unity and the diversity of human nature. The recognition of 'common' humanity will carry an adequate provision of food, shelter, health, education and other prime necessaries of life, so as to yield equal satisfaction of such requirements to all members of the community. This minimum standard of life will be substantially the same for all adult persons, and for all families of equal size and age. Upon this standard of human uniformity will be erected certain differences of distribution, adjusted to the specific needs of any class or group whose work or physical conditions marks it out as different from others. The present inequalities of income, so largely based upon conventional or traditional claims, would find little or no support under this application of the organic law. Indeed, it seems unlikely that any specific requirements of industrial or professional life would bulk so largely in interpreting human needs as to warrant any wide discrimination of incomes. There seems no reason to maintain that a lawyer's or a doctor's family would require, or could advantageously spend, a larger income than a bricklayer's, in a society where equality of educational and other opportunities obtained. But, if there were any sorts of work which, by reason of the special calls they made upon human faculties, or of the special conditions they imposed, required an expenditure out of the common, the organic law of distribution according to needs would make provision for the same as an addition to the standard minimum. So likewise the hours of labour would be varied from a standard working-day to meet the case of work unusually intense or wearing in its incidence. To what extent society would find it necessary to recognise individual differences of efficiency within each grade as a ground for particular remuneration -- and how far such claims would represent, not payment according to true needs but power to extort a personal rent -- is a question which can only be answered by experience. It may, however, be regarded as certain that the high individual rents which prevail at present in skilled manual and menial work, could not be maintained. For these high rates depend upon conditions of supply and of demand which would not then exist. The enormous fees which specialists of repute in the law or medicine can obtain depend, partly, upon the inequality of educational and social opportunities that limits the supply of able men in these professions; partly, upon other inequalities of income that enable certain persons to afford to pay such fees. Equality of opportunity and even an approximate equalisation of income would destroy both these sources of high rents of ability. What applies in the professions would apply in every trade. Individual 'rents' of ability might survive, but they must be brought within a narrow compass.
While, then, the selfishness of individual man might give a slight twist to the application of the social policy of distribution according to needs, it would not impair its substantial validity and practicability.
Thus we see this law of distribution, operative as a purely physical economy in the apportionment of energy for mechanical work, operative as a biological economy through the whole range of organic life, is strictly applicable as a principle of social economy. Its proper application to social industry would enable that system to function economically, so as to produce the maximum of human utility with the minimum of human cost.
§6. If we can get an industrial order, in which every person is induced to discover and apply to the service of society his best abilities of body and mind, while he receives from society what is required to sustain and to develop those abilities, and so to live the best and fullest life of which he is capable, we have evidently reached a formally sound solution of the social problem on its economic side. We are now in a position to approach the actual processes of economic distribution that prevail to-day, so as to consider how far they conform to this sound principle of human industry.
We are not justified at the outset in assuming that any wide discrepancy will be admitted. On the contrary, in many quarters there survives a firm conviction that our actual system of industry does work in substantial conformity with the human law of distribution.
The so-called laissez-faire theory of industrialism based its claims to utility and equity upon an assertion of the virtual identity of the economic and the human distribution. If every owner of capital or labour or any other factor of production were free to apply his factor in any industry and any place he chose, he would choose that industry and that place where the highest remuneration for its employment was attainable. But since all remuneration for the factors of production is derived from the product itself, which is distributed among the owners of the several factors, it follows that the highest remuneration must always imply the most productive use. Thus, by securing complete mobility of capital and labour, we ensure both a maximum production and an equitable distribution. 'Led as by an invisible hand', every owner of capital, labour or other productive power, disposed of his factor in a manner at once most serviceable to the production of the general body of wealth and most profitable to himself. The application of this theory, of course, assumed that everybody knew or could get to know what employment he would be likely to find most profitable for his capital or labour, and would use that knowledge. It was, moreover, held that the actual conditions of industry and commerce did and must substantially conform to this hypothesis of mobility. Any circumstances, indeed, which contravened it by obstructing the mobility and liberty of employment were treated as exceptional. Such exceptions were monopolies, the exclusive owners of which forbade freedom of entry or of competition to outside capital and labour, and secured higher rates of profit than prevailed in other businesses. The harmony of perfect individualism demanded that all such monopolies, together with protective duties and other barriers to complete liberty of commerce and of industry, should be removed. All productive power would then flow like water through the various industrial channels, maintaining a uniform level of efficient employment, the product being distributed in accordance with the several costs of its production and being absorbed in the processes of productive consumption that were required to maintain the current volume of productive power or to enhance it.
There was a little difficulty in the case of rents of land. Though differential rents, measuring the superior productivity of various grades of land as compared with the least productive land in use, were necessary payments to landowners, they could not rank as costs and could not be productively consumed. So likewise with the scarcity rents, paid even for the least productive lands where the supply for certain uses was restricted. Both scarcity and differential rents were classed as surplus. But though the magnitude of this exceptional element might seem to have been a fatal flaw in the individualist harmony, a characteristic mode of escape was found in the doctrine of parsimony which prevailed. Though economic rents could not be productively consumed by their recipients, they furnished a natural fund of savings, so providing the growing volume of new capital which was necessary to set labour to productive work. So, by a somewhat liberal interpretation, it was contended that 'the simple system of natural liberty', even operating on a basis of private ownership of land, drew from each man the best and fullest use of his productive powers, and paid him what was economically necessary to maintain and to evoke those powers. Early critics of this theory, of course, pointed out that the interpretation of distribution 'according to needs' was defective from the standpoint of humanity, since the only needs taken into account were efficiency for productive work, the nourishment and stimulus to produce a larger quantity of marketable goods, not the attainment of the highest standard of human well-being. But to most economists of that day such a criticism seemed unmeaning, so dominant in their minds was the conception of economic wealth as the index and the instrument of human welfare.
§7. It is commonly asserted and assumed that this laissez-faire theory is dead, and that the attainment of a harmony of social welfare, by the free intelligent play of individual self-interest in the direction of economic forces, has been displaced by some theory of conscious cooperative or corporate direction in which the State takes a leading part. But at this very time, when the policy of every civilised nation is engaged more and more in checking monopolies and industrial privileges upon the one hand, and in placing restraints upon the havoc of unfettered competition on the other, a distinct and powerful revival of an economic theory of production and distribution undistinguishable in its essentials from the crude 18th century laissez-faire has set in. Largely influenced by the desire to apply mathematics, so as to secure a place for economics as an 'exact' science, many English and American economists have committed themselves to a 'marginalist' doctrine, which for its efficiency rests upon assumptions of infinite divisibility of the factors of production, and frictionless mobility of their flow into all the channels of industry and commerce. These assumptions granted, capital and labour flow into all employments until the last drop in each is equally productive, the products of the 'marginal' or final drops exchanging on a basis of absolute equality and earning for their owners an equal payment. Among English economists Mr. Wicksteed has set out this doctrine in all its economic applications most fully. He shows how by a delicate balance of preferences 'at the margins' i.e., in reference to the last portion of each supply of or demand for anything that is bought or sold, there must be brought about an exact equivalence of utility, of worth, and of remuneration, for the marginal increments in all employment. 'So far as the economic forces work without friction, they secure to everyone the equivalent of his industrial significance at the part of the industrial organism at which he is placed.'2 Elsewhere3 he asseverates that, as regards the workers in any employment, this means that 'they are already getting as much as their work is worth,' and that if they are to get more, this 'more' can only be got either out of 'communal funds,' or by making their work worth more. The same application of the marginalist doctrine is made by Professor Chapman. 'The theory, then, merely declares that each person will tend to receive as his wage his value -- that is, the value of this marginal product-no more and no less. In order to get more than he actually does get, he must become more valuable, -- work harder, for instance -- that is, he must add more to the product in which he participated.'4 This is precisely the old 'laissez-faire, laissez-aller' teaching, fortified by the conception that some special virtue attaches to the equalising process which goes on 'at the margin' of each employment of the factors of production.
The 'law of distribution' which emerges is that every owner of any factor of production 'tends to receive as remuneration' exactly what it is 'worth'. Now this 'law' is doubly defective. Its first defect arises from the fact that economic science assigns no other meaning to the 'worth' or 'value' of anything than what it actually gets in the market. To say, therefore, that anybody 'gets what he is worth', is merely an identical proposition, and conveys no knowledge. The second defect is the reliance upon a 'tendency' which falsely represents the normal facts and forces. It is false in three respects. It assumes in the first place an infinite divisibility of the several factors, necessary to secure the accurate balance of 'preferences' at the margins. It next assumes perfect mobility or freedom of access for all capital and labour into all avenues of employment. Finally, it assumes a statical condition of industry, so that the adjustment of the factors on a basis of equal productivity and equal remuneration at the margins may remain undisturbed. All three assumptions are unwarranted. Very few sorts of real capital or labour approach the ideal of infinite divisibility which marginalism requires. An individual worker, sometimes a group, is usually the minimal 'drop' of labour, and capital is only infinitely divisible when it is expressed in terms of money, instead of plants, machines or other concrete units. Still less is it the case that capital or labour flows or 'tends' to flow with perfect accuracy and liberty of movement into every channel of employment where it is required, so as to afford equality of remuneration at the several margins. Lastly, in most industrial societies the constant changes taking place, in volume and in methods of industry, entail a corresponding diversity in the productivity and the remuneration of the capital and labour employed in the various industries 'at the margin.'5
§8. This slightly technical disquisition is rendered necessary by the wide acceptance which 'marginalism' has won in academic circles. Its expositors are able to deduce from it practical precepts very acceptable to those politicians and business men who wish to show the injustice, the damage and the final futility of all attempts of the labouring classes, by the organised pressure of trade unionism or by politics, to get higher wages or other expensive improvements of the conditions of their employment. For if 'marginalism' can prove that, as Professor Chapman holds, 'in order to get more than he actually does get, he must become more valuable-work harder, for example,' it has evidently re-created the defences against the attacks of the workers upon the fortresses of capital which were formerly supplied by the wage-fund theory in its most rigorous form. If wages can only rise on condition of the workers working harder or better, no divergence of interests exists between capital and labour, no injustice is done to any class of labour, however low its 'worth' may be, and no remedy exists for poverty except through improved efficiency of the workers. If our political economists can bring this gospel of marginalism home to the hearts and heads of the working-classes, they will set aside all their foolish attempt to get higher wages out of rents and property and will set themselves to producing by harder, more skilful and more careful labour an enlarged product, the whole or part of which may come to them by the inevitable operation of the economic law of equal distribution at the margin!
It is right to add that an attempt is sometimes made to bring marginalism into a measure of conformity with the notorious fact that large discrepancies exist in the rates of remuneration for capital or labour or both in various industries, by treating these inequalities as brief temporary expedients for promoting the 'free flows' of productive power from less socially productive into more socially productive channels, and for stimulating improvements in the arts of industry. Abnormal gains, of the nature of prizes or bonuses, are thus obtainable by individual employment, or by groups of employers, who are pioneers in some new industry or in the introduction of some new invention or other economy. But these rewards of special merit, it is argued, are not lasting, but disappear so soon as they have performed their socially serviceable function of drawing into the favoured employments the increased quantity of new productive power which will restore the equality of productivity and remuneration 'at the margins'.
Now, even were it possible to accept this rehabilitation of laissez-faire theory, accepting this equalising 'tendency' as predominant and normal, and classifying all opposing tendencies as mere friction, it would not supply a law of distribution that would satisfy the conditions of our 'human' law. It would afford no security of distribution according to 'needs', or human capacity of utilising wealth for the promotion of the highest standard of individual and social welfare. It would remain an ideally good distribution only in the sense that it would so apportion the product as to furnish to all producers a stimulus which would evoke their best productive powers, so contributing to maximise the aggregate production of marketable goods. Only so far as man was regarded as an economic being, concerned merely in the nourishment and improvement of his marketable wealth-producing faculties, would it be a sound economy.
Just as in the case of the older, cruder 'freedom of competition', it rests upon the fundamental assumption that all the product, the real income of the community, will be absorbed in 'productive consumption', defraying the bare 'costs' of maintaining and improving the productive powers of capital, labour and ability, for the further production of objective economic goods and services. It would remain open to the objection that it assumed an identity of economic wealth and human welfare which is inadmissible, and that it refused to provide that subordination of economic production and consumption to the larger conception of human welfare which sound principles of humanity require. Though all work might be most productively applied, it might still contain excessive elements of human cost, and though all products were productively consumed many of the finer needs of individual men and of society might still remain without satisfaction.
§9. But the full divergence between the operation of the actual economic law of distribution and the human law can best be discovered by unmasking the fundamental falsehood of all forms of the laissez-faire or competitive economy, viz., the assumption that the national income tends to be distributed in a just economy of costs. Is there in fact any operative law which distributes or 'tends' to distribute the £2,000,000,000 worth of goods that form our income, so that all, or even most of it, acts as a necessarY food and stimulus to evoke the full and best productive work of those who receive it? Or, if there are failures in this economical distribution, are they so few, so small, and so ephemeral, that they may reasonably be treated as 'friction', or as that admixture of error or waste which is unavoidable in all human arrangements?
Now it is of course true that the national income must continually provide for the subsistence of the labour, ability and capital, required to maintain the existing structure of industry and the current output of goods and services. The brain-workers and the hand-workers of every sort and grade, from artist and inventor to routine labourer, must be continuously supplied with the material and non-material consumables sufficient to enable them to replace in their own persons, or through their offspring, the physical and psychical wear and tear involved in their work. The fertility of the soil, the raw materials, fuel, buildings, tools and machines, requisite in the various productive processes, must similarly be maintained out of the current output. These bare costs of subsistence, the wages, salaries and depreciation funds necessary to replace the wear and tear of the human and material agents of production, are a first charge upon the national dividend. To refuse the payments which provide this subsistence would be suicidal on the part of the administrators of the income. They rank, from the standpoint of society6 as costs of production. If the product which results from the productive use of these factors exceeds what is necessary to defray these costs, the surplus may be employed in either of two ways. It may be distributed among the productive classes in extra-payments so as to evoke by a set of economically-adjusted stimuli such enlarged or improved efficiency as will provide for a larger or a better product in the future. In a society of a progressive order where the numbers or the wholesome needs, or both, are on the increase, no surplus, however large, can be excessive for such provision. A socially sound and just distribution of the surplus would be one which absorbed it entirely in what may be called the 'costs of growth'. This, however, does not by any means imply that the whole of the surplus must advantageously be distributed directly among the individual owners of labour, ability or saving power, in order to evoke from them the maximum extension of their several productive powers. A good deal of the surplus may, indeed, be thus applied in higher individual incomes of producers. But the State, politically organised society, must look to the 'surplus' for its costs, not only of upkeep but of progress. For whatever part we may assign to the State in aiding industrial production, all will agree that much of its work, in the protection and improvement of the conditions of life, is essential to the stability and progress of industry, and involves 'costs' which can only be met by a participation in the industrial dividend. It may even be urged that the claims of the State to maintenance and progress are equal to the claims of individuals upon the surplus. For it is evident that industrial progress demands that both individual and social stimuli and nutriment of progress must be provided from the surplus by some considered adjustment of their several claims. A surplus, thus properly apportioned in extra-subsistence wages and other payments to producers and in public income, would be productively expended and would thus contribute to the maximum promotion of human welfare.7
§10. But though in such a society as ours a certain part of the surplus is thus 'productively' applied, and is represented in industrial and human progress, a large part is not so expended in 'costs of progress'. A large quantity of 'surplus' is everywhere diverted into unproductive channels. The income which should go to raise the efficiency of labour, to evoke more saving, and to improve the public services, is largely taken by private owners of some factor of production who are in a position to extort from society a payment which evokes no increase of productive efficacy, but is sheer waste. This power to extort superfluous and unearned income is at the root of every social-economic malady. Indeed, it often goes beyond the diversion of surplus from productive into unproductive channels. It often encroaches upon costs of maintenance. For the vital statistics of large classes of labour show that the food, housing and other elements of real wages, are insufficient for the upkeep of a normal working life and for the rearing of a healthy and efficient offspring. This means that surplus is actually eating into 'costs', in that the costs of maintenance, which sound business administration automatically secures for the capital employed, are not secured for the labour. The reason why this policy, which from the social standpoint is suicidal, can nevertheless be practised, is obvious. For the capital 'belongs to' the business, in a sense in which the labour does not. A sweating economy which 'lets down' the instruments of capital is of necessity unprofitable to the individual firms: a similar sweating economy applied to the instruments of labour need not be unprofitable. To the nation as a whole, indeed, regarded merely as a goods-producing body, any such withholding of the true costs of maintenance must be unprofitable. But there are businesses, or trades, where 'sweated' labour may be profitable to the employers or the owners of capital. There are many more where such a wage-policy, though not really profitable, appears so, and is actually practised as 'sound business'. How large a proportion of the 14,000,000 wage-earners whose incomes are paid out of our £2,000,000,000 come under this category of 'sweated' workers, we cannot here profitably discuss. But, apart from the great bulk of casual workers in all less skilled trades, there are large strata of skilled and trained adult-labour in the staple trades of the country which are not paid a full subsistence wage. Such are the large bodies of women employed in factories and workshops and in retail trade, at wages varying between eight and fourteen shillings. Indeed, it may safely be asserted that the average wage of an adult working-woman in this country, not in domestic service, is a sweating wage, definitely below true economic maintenance, and still more below the decent human requirements of life. The same statement also holds of the wage of agricultural labour in most districts of the middle and southern counties of England. In such employments the true economic 'costs' of maintenance are not provided out of the present distribution of the national income. Of a far wider range of labour is it true that the true wages of progressive efficiency, which we have seen are vital to the economic progress of the nation, are withheld. Though this deprivation does not form the whole case for labour as stated from the 'human' standpoint, it constitutes the heaviest economic count against the current distribution of wealth. The full physical and spiritual nutriment, the material comforts, the education, leisure, recreation, mobility and broad experience of life, requisite for an alert, resourceful, intelligent, responsible, progressive working-class, are not provided either by the present wage-system, or by the growing supplements which the communal action of the State and the municipality are making to the individual incomes of the workers. Out of the £2,000,000,000 a wholly insufficient sum is distributed in wages of progressive efficiency for labour.
In certain other respects also the current 'costs' distribution is exceedingly defective. The saving which goes to provide for the enlargement of the capital structure of industry is very wastefully provided. A large proportion of such savings as are contributed out of working-class incomes involves an encroachment upon their costs of progressive efficiency, and represents, from the standpoint both of the individual family and of society, bad economy. Moreover, the methods of collection and of application of such capital are so wasteful and so insecure as to render working-class thrift a byword in the annals of business administration.
§11. But these deficiencies in the economy of 'costs' can only be understood by a study of that large section of the national income which in its distribution furnishes no food or stimulus whatever to any form of productive energy. Even in the idealist laissez-faire economics we saw that rent of land was distinguished from the wages, interest and profits, which constituted the 'costs of production', and was described as 'surplus'. It was recognised that, where land was required for any productive purpose, its owners would receive in payment for its use any portion of the product, or its selling value, which remained over after the competitively determined 'costs' of capital and labour had been defrayed. The payment was economically necessary because suitable land for most industrial uses was scarce, and the amount of the payment would depend upon how much was left when capital and labour had received their share. For the landlord would take all the surplus. There are those who still insist that the owners of land are everywhere in this position of residuary legatees. Land, they think, is always relatively scarce, capital and labour always and everywhere relatively abundant. Free competition then between the owners of the relatively abundant factors will keep down the price for them to bare 'costs', leaving a maximum amount of surplus which the so-called land 'monopolists' will receive as rent. This surplus evokes no productivity from the soil or its owners; its payment does nothing to stimulate any art of industry. But, if the landowner did not take it, and it was kept by farmers as profits, or by labourers as wages, it would be just as wasteful from the productive standpoint, as if it passed as rent, for, upon the hypothesis of such economists, the full competitive wages and profits are the only payment entitled to count as cost, and no addition to such payments would increase the productivity of capital or labour.
§12. Now though there have been times and countries in which rent of land was the only considerable surplus, this is not the case in any developed industrial community to day. Other factors of production, capital, ability, or even in some instances labour, share with land the power to extort scarcity prices.
The hypothetical abundance, mobility and freedom of competition, which should prevail among all owners of capital, ability and labour, keeping down all their remuneration to a common minimum, are everywhere falsified by industrial facts. At various points in industry capital or managerial ability is found strongly entrenched against the competition of outsiders, and able to set limits upon internal competition. Wherever this condition is found, the owners of the capital or the ability so advantageously placed are able to obtain a 'surplus', which, in its origin and its economic nature and effects, nowise differs from the economic rents of land. The fluidity and complete freedom which appear to attach to the term capital, so long as we treat it in its abstract financial character, disappear as soon as for capital we substitute certain skilfully made machinery constructed under patent rights and operated by more or less secret processes, turning out, with the assistance of carefully trained. and organised labour, goods which enjoy a half-superstitious fame and special facilities of market. An examination of the capitalist system will disclose in every field of industry numerous instances of businesses or groups of businesses, sometimes constituting whole trades, which by reason of some advantage in obtaining raw materials, transport or marketing facilities, public contracts, legal privilege or protection, by using some superior process of manufacture, skill in advertising, established reputation, financial backing, or by sheer magnitude of operations, are screened from the full force of free competition, and are earning interest and profits far exceeding the minimum. Some such businesses or groups of businesses possess a virtual monopoly of the market, and can control output and prices, so as to secure abnormal dividends. Such control is, to be sure, never absolute, its control of prices being subject to two checks, the restriction of demand which attends every rise of prices, and the increasing probability of competition springing up if profits are too high. But qualified monopolies, earning dividends far larger than are economically necessary to support the required capital, are everywhere in evidence. Trusts, cartels, pools, combines, conferences, and trade agreements of various potency and stringency, pervade the more highly organised industries, substituting the principle of combination for that of competition. In all major branches of the transport trade by land and sea, in large sections of the mining industry, in the iron and steel industry and in many branches of machine-making, in many of the specialised textile trades, in the chemical and other manufactures where special scientific knowledge counts, in many departments of wholesale and retail distribution, and, last not least, in banking, finance and insurance, freedom of investment and of competition have virtually disappeared. To assume that fresh streams of capital, labour and business ability, have liberty to enter these fields of enterprise, and by their equal competition with the businesses already in possession so to increase the output, lower selling prices and keep interest and profits at a bare 'costs' level, is a childish travesty of the known condition of these trades. To affirm that such mobility and liberty of competition is the sole normal 'tendency', and that the monopolistic and combinative forces merely represent friction, is so grave a falsification of the facts as to put out of court the whole method of economic interpretation which is based thereon. Concrete capital has none of the qualities assigned to the abstract capital of these economists. It is neither infinitely divisible, nor absolutely mobile, nor accurately directed, nor legally and economically 'free' to dispose itself in any part of the industrial system where the current interest or profit exceeds the average. Over large tracts of industry combination is more normal and more potent than competition, and where this is not the case, the most competitive trades will be found honeycombed with obstructive clots, businesses enjoying special advantages and earning correspondingly high profits.
§13. Because certain qualities of business ability are requisite, to wit astuteness, keenness of judgment, calculating power, determination, capacity for organisation and executive ability, it is sometimes claimed that the high rates of profit which accrue from such businesses as we have indicated are really the creation, not of monopoly or combination, but of the talents of these entrepreneurs. But even though it be admitted that some such ability is essential to produce or to maintain a successful combination, can the entire profits of such a combination be imputed to this ability or regarded as its natural and proper reward? Take the common instance of the 'forestaller', who stops the supply of some commodity on its way to a market, secures the whole supply at competitive prices from the various contributors, and then sells it at a monopoly price fixed by himself. Are the profits of this corner a product of ability and a reward of ability, and not a 'surplus' representing an artificially contrived scarcity value? Or take the case of a contracting firm, which persuades all the other firms in a position to compete to come into an arrangement as to a minimum tender. Are the extra profits due to such an arrangement to be regarded as wages of ability, because some tact was needed to work the thing? But suppose we granted the whole contention, and agreed that the extra dividends paid to shareholders in favoured or protected businesses were really produced by the ability of the entrepreneur or manager, what then? It is not proved that these extra profits are 'costs', not 'surplus'. On the contrary, the fact that they can be taken as extra dividends or bonuses by the owners of the capital, instead of passing in 'wages of ability' to the entrepreneur, is proof positive that they are surplus. For if they were a subsistence wage of ability, or even a 'prize', essential to evoke some special output of skill or energy, they could not be thus diverted from the entrepreneur to the shareholders. In fact, there is no reason to suppose that any very rare or conspicuous ability is evinced in working a successful pool or combine, or even in organising a successful business. Still less is there reason to suppose that the profits attending such an enterprise are in any way proportionate to the skill or energy of the entrepreneur. Everyone is aware that the contrary is the case. Indeed, so far as scientific, professional, and business ability is industrially useful and has a claim to income, enquiry shows that there is no better security for mobility, freedom of competition and equality of payment, than in the case of capital. Inequalities of economic conditions between various classes of our population, involving inequalities of nurture and of education, and of every other sort of 'opportunity' relevant to the discovery, training, equipment and success of 'natural ability', set up a series of almost impenetrable barriers to the free flow of natural ability throughout the industrial system, and give rise to an elaborate hierarchy of restricted employments where the rates of remuneration represent, not any inherent services of ability, but the degree of the restriction in relation to the importance of the work. All such advantages of opportunity are reflected in rates of payment for 'ability' which carry elements of 'surplus.' Though some portion of the higher remuneration paid to successful professional workers may be regarded as interest upon the capital-outlay of their education and training, there is no reason to hold that the extra payment is adjusted to the costs of this outlay. Still less can any such argument avail in the case of high business profits. Though ability and expensive training may be favouring conditions to such financial success, restricted competition must be accounted the principal direct determinant of all such extra payments.
§14. There remains one final demurrer to our doctrine of the unproductive 'surplus'. If you take into consideration, it is urged, all the unsuccessful as well as the successful businesses, you will find that the average return for capital and for business ability is low enough, not in fact more than represents a bare 'costs' economy. Similarly with the high incomes earned by the few successful men in the professions and in other walks of life. Set the failures fairly against the successes and there is no net 'surplus' to take account of.
But this contention is one more abuse of the method of averages. To the charge that one man is overpaid, it is no answer that another is underpaid. To the statement that surplus emerges in the payment for some orders of capital or ability it is no answer to say that other capital and ability does not even get its true 'costs' or subsistence wages. The force of this rebuttal is still further strengthened when it is realised to what extent the success of those who succeed is directly responsible for the failure of those who fail. For the economic strength of those whose superior advantages have secured for them a position of control will necessarily operate to make the competition of outsiders difficult and their failure probable. Indeed, a portion of the gains which combination yields will often be consciously applied to kill the competition of outsiders, or to restrict their trade to the less profitable or the more precarious forms of enterprise. But even where this business policy is not adopted, the very fact that strong firms and 'combines' control many markets, must, by limiting the area of free competition, intensify the competition within that area and so cause the failures to be numerous.
The contention, that the excessive profits of successful firms are balanced and in some way cancelled by the losses of those that fail, is also contradicted by the psychology of the case. If it could be shown that the chance of winning these high gains was in fact a necessary inducement to the winners to stake their capital and business capacity in an inherently risky line of enterprise, there might be some force in this plea. But to the men who achieve these successes business is not a simple game of hazard in which they have merely the same chance as the others. Success is commonly achieved by force, strategy and the possession of known advantages, and is used to strengthen these advantages and so to increase continuously the 'pull' by which they accumulate their gains and ruin their would-be competitors. Although tight forms of monopoly are very rare, loose or partial restrictions upon competition are very numerous and often very profitable. All these extra gains, issuing from various forms of natural or contrived scarcity in all sorts of industries, are rightly classed as unproductive surplus. Many of them are as constant and as certain as the economic rents of land, arise in the same way from a limitation of some productive factor, and are 'unearned' income in the same sense of that term. Other of these gains are more fluctuating, proceeding from less stable forms of privilege or combination, but while they exist they equally belong to unproductive 'surplus.'8
§15. The distinction between that portion of the social income which goes as necessary payments to support and evoke the energies of body and mind of wealth-producers, i.e., costs of production, and that which goes as unproductive 'surplus' to those who, possessing some necessary instrument of production that is relatively scarce, can exact a scarcity price, is fundamental in a valuation of industry. For this surplus not only represents sheer economic waste, regarded from the social standpoint, but it can be shown to be directly responsible, as an efficient cause, for most of those particular maladies in our current processes of production and consumption which impede the economic and the human progress of the nation.
For if our analysis of this surplus is correct, it consists in the seizure of a large portion of the fruits of individual and social productive energies, required for the full support and further stimulation of these energies and for the wider human life which they are designed to serve, and their assignment to persons who have not helped to make them, do not need them, and cannot use them. The payment of surplus takes large sections of the income, needed to raise the economic and human efficiency of the working-classes, or to enable society to enlarge the scope and to improve the quality of the public services, and disposes them in ways that are not merely wasteful but injurious. In effect, all the excessive human costs of production and all the defective human utilities of consumption, which our separate analysis of the two processes disclosed, find their concrete and condensed expression in this 'surplus'. The chief injuries it causes may be summarised as follows:
(1). Flowing abundantly as 'unearned' income into the possession of 'wealthy' individuals and classes, it thereby causes large quantities of the national income to be consumed with little or no benefit. For much, if not most, of this surplus, being devoted to luxury, waste, extravagance and 'illth', furnishes by its expenditure not human utility but human 'cost', not an enhancement but a diminution of the sum of human welfare.
(2) By enabling its recipients to disobey the sound biological and moral precept, 'in the sweat of thy face thou shalt eat bread,' it calls into being and sustains a leisured or unemployed class whose existence represents a loss of productive energy and of wealth-production to the nation.
(3) The evil prestige and attraction of the life of sensational frivolity this idle class is disposed to lead tends by suggestion to sap the wholesome respect for work in the standards of the rest of the community, and to encourage by servile imitation injurious or wasteful methods of expenditure.
(4) The economic necessity of producing this surplus imposes excessive toil upon the productive classes, being directly responsible for the long hours and speeding-up which constitute the heaviest burden of human costs. The direction which the expenditure of the surplus gives to capital and labour degrades the character of large bodies of workers by setting them to futile, frivolous, vicious or servile tasks.
(5) The disturbing irregularity of the trades which supply the capricious and ever-shifting consumption, upon which the 'surplus' is so largely spent, imposes upon the workers a great cost in the shape of irregularity of employment, and a considerable burden of costly saving by way of insurance against this irregularity.
(6) By stamping with the badge of irrationality and inequity the general process of apportionment of income, the surplus impairs that spirit of human confidence and that consciousness of human solidarity of interests which are the best stimuli of individual and social progress.
The surplus element in private income thus represents the human loss from defects in the current distribution of wealth, not only the loss from wasteful and injurious consumption but from wasteful and injurious production, an exaggeration of human costs and a diminution of human utilities. The primary object of all social-economic reforms should be to dissipate this surplus and to secure its apportionment partly as useful income for individual producers, partly as useful income for society, so that, instead of poisoning the social organism as it does now, it may supply fuller nourishment and stimulus to the life of that organism and its cells.
Thus directed, partly into higher wages of efficiency for workers, partly into further income for the enrichment of the common life, the 'surplus' will in effect cease to be surplus, being completely absorbed in satisfying the human requirements of individuals and society. For not only will it furnish the expenditure required to bring the standard of consumption of all grades of workers up to the level of a full satisfaction of human needs, but it will establish an entirely new conception of public income. For it will be recognised that the public revenue, taken either by taxation or as profits of public industry, is earned by public work precisely as the revenue of individuals is earned by private work, and is required for public consumption just as private income is required for private consumption. Thus the whole of what now figures as a wasteful 'surplus' would be applied in productive consumption.
The scope of the operation of this organic law, of course, widely transcends this special application to the distribution of economic income. It is the general law of order and of progress in all departments of organic activity. But for our task, that of a human valuation of industry, its worth is supreme. For in the application of the organic law of distribution all the great antagonisms which loom so big as social Problems, Luxury and Poverty, Toil and idleness, The individual and Society, Authority and Liberty, find their solution.9

NOTES:

1. Even there he is not separated in physical functions. The sexual, philoprogenitive, and the gregarious instincts, which are rooted in physical structure, negate physical individualism. So does the structure of his brain, which in solitude decays or becomes diseased.
2. The Common-sense of Political Economy, p. 698.
3. p. 345.
4. Work and Wages, Vol. I, p. 14.
5. Professor Pigou (Wealth and Welfare, p. 176), though adopting the general position of marginalism, makes a concession, as to its applicability, which is a virtual admission of its futility. For by showing that only in 'industries of constant returns' are 'supply price' and 'marginal supply price' equal, and that in industries of 'decreasing' or of 'increasing' returns there exists a tendency to exceed or to fall short of 'the marginal net product yielded in industries in general,' he virtually endorses the criticism that 'marginalism' assumes a statical condition of industry. For only in a statical condition would all industries be found conforming to constant returns: the operation of increasing or diminishing returns means nothing else than that changes in volume or methods of production are raising or lowering productivity and remuneration above or below the equal level which 'marginalism' desiderates.
6. From the standpoint of the individual business firm 'costs of production' may include many higher rates of payments, necessary under the actual conditions of competitive industry to secure the use of the required agents.
7. For it must be kept in mind that the 'productive expenditure' to which reference is here made refer ultimately to a standard not of market but of human values.
8. Economists, following the classical distinction made by Adam Smith in the case of land values, may break up the surplus into various species of scarcity rents on the one hand and differential rents on the other. A scarcity or 'specific' rent will occur when the whole supply of some factor of production, e.g., all the land available for some particular use, or all the capital employed in some trade, is in a position to take a payment higher than is obtainable where more land or capital is available for this particular use than is required to turn out the supply of goods that is actually sold. The worst hop land in use in England obtains a positive rent, the worst equipped ships in the Atlantic combine obtain a surplus-profit: better acres of hop land, better-equipped ships obtain a differential rent or profit in addition. Both specific gain and differential gain are surplus, and the basis of each is a scarcity of supply and a restraint of competition.
9. For a detailed and more technical defence of the fundamentally important distinction between 'costs' and 'surplus' and for a closer analysis of the sources of 'unproductive surplus,' readers may be referred to the author's earlier work, The Industrial System: an enquiry into earned and unearned income. (Longman's 2nd and revised edition, 1909).