A. R. Orage, "Alfabetul economic" (An Alphabet of Economics")

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AN ALPHABET OF ECONOMICS


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AN ALPHABET OFECONOMICSBY

A. R. ORAGEEDITOR OF "the NEW AGE"

1^LONDON

T. FISHER UNWIN, LTD.ADELPHI TERRACE


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First Published in 1917

(All rights reserved)


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INTRODUCTIONThe following Alphabet grew out of anattempt to compile a glossary of economicand political terms for the use of readers ofthe New Age in general and of students ofthe system of National Guilds in particular.It developed, however, into a more or lesssystematic attempt to define economics interms of the wage system, and, at the sametime, to suggest an alternative to it. Thoughfragmentary, therefore, in appearance, itwill be found to contain a consistent criticismof current economic theory, a consistentexposition, however inadequate, of the eco-nomic theory held by the new school ofNational Guildsmen, and consistent sugges-tions, somewhat shadowy, it is true, towardsa social reconstruction.


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vi INTRODUCTIONIt has long been realised that modern

industry depends for its main motive uponthe desire for gain ; and hence that " profit-eering," or production for the sake of profit,is an accurate description of it. It has longalso been realised that in thus permittingproduction to be carried on from an irrele-vant motive we were admitting an ethicalcontradiction into the practices of the State.At the same time, since economists, by-means of their analysis of the factors of pro-duction, found themselves unable to detectany intellectual defect in the system, theethical defect was assumed to be either apassing phenomenon, to be remedied byeducation, or inherent in human nature.Nothing, they concluded, was wrong in thetheory of economics ; hence nothing couldbe wrong in the practice unless it weredue to factors outside economic control.Economic theory, in short, was assumed tobe able to leave the court, where it had beencharged with the crimes of modern industry,without a stain upon its character.


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INTRODUCTION viiTo this, however, it was not possible that

everybody always should agree ; and, infact, as the history of Socialist criticismshows, there have always been protestantsand dissentients, who maintain that what isright in theory cannot be wrong in practice,and that what is wrong in practice mustneeds, therefore, be wrong in theory. With-out attempting in this place to resume thecourse of such a criticism or to review thesuccessive hypotheses upon which suchcriticisms have rested themselves, it maybe said that the common sum of them isto be found and is assumed in the defini-tions herein contained. The issue turns, itwill be seen, upon the original analysis ofthe factors of production, from which, if weaccept the current conception, all the con-sequences of modern industry flow, andwhich, therefore, must be re-examined ifwe are to build our industry upon a newfoundation.These factors, it is well known, are threein number. They are Land, Capital, and


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viii INTRODUCTIONLabour. Assuming these to be unalterableby criticism, there is, as has been said, littleto be done of a radical character in eco-nomics, which must, in fact, become moreand more detailed as time goes on, and lessand less, therefore, reconstructive. But thequestion the Socialists ask, is whether, intruth, these factors are either congruous orexhaustive. Laying the axe to the veryroot of the tree, we cliallenge the assump-tion on which the modern theory of eco-nomics rests, the theory, namely, whichdefines the factors of Land, Capital, andLabour as the true factors of production.Of recent years, under the pressure ratlier

of practical legislation than of pure thought,the time-honoured distinction between Landand Capital has been fast disappearing, inspite of the efforts of the older school topreserve the ancient landmarks. The in-volved discussions in the Press concerningland values and increments of value, and ofthe difference between Rent and Interest,which had their origin in the famous first


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INTRODUCTION ixBudget of JNIr. Lloyd George, have left, byreason of their confusion, little clear in thewhole field save this : that the distinctionbetween Land and Capital is impossible tomake, and is not worth making. The two,in short, have now become one ; and it isno longer admissible, except colloquially, todistinguish between Land and Capital orbetween Rent and Interest. Both Landand Capital are Capital ; and all Capitalconsists of Tools of Production. Rent andInterest are the names respectively given topayment for the use of the tool of Land (asa rule) and of the tool of Capital. Save bycustom, there is no distinction betweenthem. Having, however, now reduced twoof the terms of the classic trinity to acommon termnamely, to the commonterm of a Tool of Productionhow do wefind the case stands with the third memberof the trinity, the factor of Labour ? IfLand and Capital are alike Tools of Pro-duction, and their third partner, Labour, isof the same nature with them (as, by the


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INTRODUCTIONclassic hypothesis, it must be in order tomaintain the congruity of the factors),Labour must of necessity be a Tool of Pro-duction also. But if Labour is a Tooltogether with Land and Capital, and thesethree exhaust the factors of production, praywho or what is the user of these tools and,by their means, the one and only genuineproducer ? A tool cannot be said to pro-duce anything by itself; and it is obvious,in the case of the tools of Land and Capital,that the miracle is not expected of them.Nevertheless, by the interaction of the toolof Labour upon the tool of Land andCapital, it is assumed that production isbrought about 1

We are in this dilemma brought face toface with the cardinal error of the acceptedthreefold classification of the factors ofproduction. Upon the common assumption,each of them is a tool, and they are all toolstogether, leading us to look in vain withinthe definition for the answer to the inevitablequestion, " Who, then, uses these tools ?"


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INTRODUCTION xi

Upon the alternative assumption, on theother handthe assumption that Labour isthe real user of the toolswe are left withour original threefold classification brokento pieces in our hands.The escape from the dilemma is to befound in the consistent doctrine underlying

the following definitions that, in fact, Labouris not properly a " factor " in production,but the producer himself. What has madeof Labour a mere factor in production isCapitalism.The simplicity of this discovery is, how-

ever, liable to miss its effect by reason ofthe very fact of its simplicity, but it is tobe hoped that its frequent repetition in thefollowing pages will bring its truth home toevery reader. For what at last emergesfrom the discussion of the factors abovesuggested is a classification at once scientificand revolutionary and at once economicand humane. Land and Capital appear aseconomically indistinguishable tools of pro-duction. Labour, on the other hand,


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xii INTRODUCTION

appears, not as a tool but as the tool-user,whose name, moreover, should not beLabour, but Labourers. Economies atbottom reduces to two terms : Labourersand Tools, or Workmen and Stuif. Theseare the only factors in production.

It is unnecessary to repeat here what isso often repeated in the text ; but a wordmay be added concerning the reconstructiveproposals that will be found more or lessclearly outlined in the following pages.Our case is that the existing industrialsystem is based upon the erroneous analysishitherto made of the factors of production ;and that with a fresh and a more accurateanalysis, a new industrial synthesis is de-manded. Upon the assumption that Labouris congruous with Land and Capital, andthat all three are equally Tools of Produc-tion, their employment upon equal termsby a user of tools who must needs be nothimself a factor in production is logical. Inother words, the Capitalist is a logicalconsequence of an analysis that reduces


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INTRODUCTION xiiiLabourers to Labour, and sets it down withLand and Capital as a mere factor of pro-duction. But following upon the analysishere set out, which denies that Labourexists except in the form of the Labourer,and affirms that in this form the Laboureris the sole producer, the conclusion isreached that the new industrial synthesismust substitute the Labourer for theCapitalist, the real user of the real tools ofproduction for the mere owner of them.The system of National Guilds (sometimescalled Guild Socialism) which is fragmen-tarily sketched in the course of this Alphabet,is designed to realise in practice the analysisnow made in theory. Starting from thediscovery that Labour is synonymous withLabourers, and that as such Labour is not atool but a tool-user, the system of NationalGuilds envisages the future of industry asimplying the subordination of tools to theirusers, hence of Capital to Labour. Thatthe change is revolutionary cannot be deniedand not only is some such change necessary


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xi V INTRODUCTIONif our industrial system is to become ethicalin character, but a revolutionary change inindustry is implicit, we repeat, in a radicalchange of economic theory. Whether it bein National Guilds or in some other formof industrial organisation that the futurewill take shape, the present analysis is theshadow cast before it. May the synthesisbe soon in coming I

A. R. O.


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AN ALPHABET OF ECONOMICSAbility.We are accustomed to hear ofmen of great abilitywho, nevertheless,

remain poor. There are men who can" make anything but money." The distinc-tion between human ability and economicability is, however, not necessarily to thedisgrace of economics. Ability, in theeconomic sense, has a special meaning ; andwhile it by no means excludes ability ofother kinds, the only ability with which it isconcerned is the ability to " bring things tomarket." What is marketable and what isactually marketed are the sole concerns ofeconomics as the science of production : andhence the sole kind of ability that entersinto its purview is economic ability. It istrue that even from this point of view certainforms of ability have a legitimate ground of

1


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2 AN ALPHABET OF ECONOMICScomplaint against the world. They maytruly say that they are too good for themarket : meaning by this that the com-modities they can produce are unmarketableon account of the absence of an intelligentdemand. It is true, again, that we must alldeplore the marketability of certain formsof ability, and wish that they did not exist.But the range of the market is defined bythe range of society ; and it is useless tocomplain that abilities are wasted on the onehand, or encouraged when they should notbe, on the other handso long as supplyand demand determine what shall be pro-duced. To provide a livelihood for desir-able abilities that now cannot find a market,or to starve out undesirable abilities thatto-day find a ready marketwe should needto revolutionise the conception of a marketaltogether. We should need, in fact, toabolish the market.

Abstinence.This word is met with ineconomics in such phrases as '' the reward


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ABSTINENCEof abstinence " ; " capital is the fruit ofabstinence." To abstain is to forgo ; itimplies, therefore, the existence of a choice.But between what alternatives is the choicein economics exercised ? It is between con-suming and going without. He is thus saidto practise abstinence who, having the choicebefore him between consuming and not-con-suming, chooses not to consume. The con-sequence, however, of such a choiceand,hence, the first fi'uits of abstinenceis thesaving of the commodity that has been for-gone. And in so far as this saved com-modity can be said to be Capital, abstinenceis the mother of Capital. But there isanother way of looking at the subject.Simple abstinence is not always in itself themost fruitful source of Capital, Givenchoice between consuming and not-con-suming, the choice of not-consuming istruly more advantageous to Capital thanthe choice of consuming. On the otherhand, given the choice between not-consum-ing, consuming foolishly, and consuming


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4 AN ALPHABET OF ECONOMICSwisely, the advantage is no longer withabstinence, but with wise consumption.Capital, we may therefore say, is moreusually the fruit of wise consumption thanof abstinence. Note, however, that in anyevent Capital is the child of choice. Nochoice, no Capital. It follows that the pro-letariat, having only Hobson's choice toconsume, cannot create Capital ; for theycan neither not-consume nor consume withdiscrimination.

Arbitration.When the two parties toindustry, namely, the Capitalists and theI^abourers, fail to agree upon the price to bepaid for Labour, they may submit theirrespective claims and pleadings to an outsideand presumably disinterested party, andagree to accept his decision. Such a processof submission of evidence and submission toan outside decision upon it is called Arbitra-tion. The materials for arbitration are theevidences and pleadings of the two sides, inthe first place ; and, in the second place,they are the facts of the market in general,


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ARBITRATIONBANKINGboth as regards Labour and Capital. Anarbitrator may, for example, supplement theevidence produced by both sides and bringin considerations drawn from a wider fieldthan the area covered by the particulardispute. He may say, for instance, that thewages asked for are in excess or defect of themarket-price of labour in general and with-out reference to the conditions immediatelybefore him. Or, again, he may say that thedemands of the Capitalists are excessive, notmerely in respect of the particular circum-stances, but in respect of circumstances ingeneral. As a matter of fact, however, anarbitrator is usually benevolently disposed,not only to Capital in general, but to theCapitalists before him in particular ; and hetherefore cites the immediate or the moregeneral considerations, whichever shall proveto be the more favourable to his virtualclients.

Banking. The smelting of Capital.Capital, it is clear, exists in two forms : areal and a nominal. The real form of Capital


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6 AN ALPHABET OF ECONOMICSis fixed in land, buildings, machinery, com-modities, and the like. The nominal formconsists in claims upon these based upon thecalculation of what can be produced by theirmeans. The latter or nominal form, beingchiefly paper equivalent to I.O.U.s, is easilycirculable, and hence is said to be liquid orcurrent. And it is the function of the Banksto make it and to keep it so. The essenceof Banking is the nominalisation of realcapital ; or, again, the liquefaction of solidcapital. And for this operation the Bankerscharge interest, which is the rent ofcurrency.

Blacklegs.Members of an industrywho refuse to keep the rules laid down bytheir fellows for their common good. Thoughusually confined to wage-earners who remainoutside their union and break its rules, theterm " blackleg " may be as properly appliedto members of other occupations (professions,for example) who not only refuse to be boundby the rules laid down by its members for


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BLACKLEGSCAPITALthe good of the profession as a whole, butexercise their power to break them. Alawyer or a doctor, a stockbroker or a dentist,who refuses to accept and to carry out thecommon rules of these professions becomesguilty of unprofessional conduct, and rendershimself liable to expulsion. Such a man hasbecome a blackleg within his association.Usually, however, the blackleg, whether inprofessions or in the wage-industries, hasnever been a member of the Association orTrade Union ; but breaks their rules fromoutside.

Capital.If Land can be said to be theelemental tool by the proper use of whichMan can produce articles of utility (for hisown consumption or for exchange or asmeans to further production), Capital maybe said to consist of man-made tools or, aswe should prefer to say, of implements. Aplough is an implement of production, whilethe land through which it is driven is aninstrumefit of production. A plough thus


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8 AN ALPHABET OF ECONOMICSbelongs to the class of Capital tools, whilethe land is an elemental tool. A lishing-boat, again, is a man-made implement forthe production of fish from the sea. It istherefore a Capital tool, while the sea itselfis an elemental tool. But these simpleman-made tools are only elementary formsof Capital. Man is the tool-making as wellas the tool-using creature. He has mademany elaborate tools for the production ofwealth. Not only a plough is a tool, butthe road that leads to the field in which it isused, the granary in which the corn is stored,the factory in which the plough is made,and, finally, the whole created system bymeans of which the plough is brought to thefield and the corn to the factory, are tools.The sum total of man-made devices for pro-ducing wealth from the elemental toolsthesum total, let us say, of secondary tools, ifwe call Land the primary toolconstitutesthe first form of Capital or what is usuallycalled Fixed Capital. Even this, however,does not exhaust the forms of Capital. For


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CAPITAL 9

Capital consists not only of tools visible andtangible ; but, since it is man-made, it mayequally well consist of whatever man cancount upon as certain to become visible.Thus a plough is a tool visible and tangible ,but it is obviously of no use unless it isbelieved that men can and will use it andthat access to the land can be found for it.But for this belief or Credit the ploughwould be useless. Capital thus consists notonly of the actual tools, but of the Creditmen can establish for themselves that thetools will be usable and will be used. Mostcapitalists deal mainly in this credit ratherthan in the actual tools concerning whichthe credit exists. This form of Capital is anI.O.U., backed by all the existing tools andendorsed by the tool-users. It is theircredited promise to produce what theyundertake to produce : and it may bestrictly defined as the latent usability ofthe existing implements of production,given the will of the labourers to usethem.


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10 AN ALPHABET OF ECONOMICSCapitalist.A capitalist is a man whoowns one or other or both of the two only

tools employed in the production of wealth :elemental toolspart of the land, water, orair ; or secondary toolsthe implements ofproduction: ships, machines, houses, etc., orlegal projiiises of them. Now as, withoutaccess to the elemental tools or the use ofthe secondary tools, labourers, howeverskilled, can produce nothing, it follows thatfor permission to use them they must beprepared to pay, unless the permission isgiven them. But it is of the essence of thecharacter of the Capitalist that he will notgive permission to workmen to use the toolshe possesses. He will only sell permissionto them. And again, he will not even sellto them, if he can help it, but he will onlylend to them. And, still again, he will notlend to them if he can help it, but he prefersthat the labourers should lend themselves tohim. This lending by labourers of theirenergy and skill to the capitalists who ownthe main tools of production is called work-


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CAPITALISTCHARITY 11ing for wages ; and in England four men outof five belong to this class. They are slavesof the tool-owner, since without his permis-sionwho has, be it remembered, bothclasses of tool in his possessionthey canproduce absolutely nothing. This lendingby men of their energy and skill to theowners of the tools of production is dis-guised in the case of the clerical, managerial,and professional classes in various waysbycalling a job an appointment, or a wage asalary, or by being permitted to wear abowler and a white collar on work-days. Infact, however, all men who do not possessone or other of the tools of production areproletariat, depending upon the sale of theirenergy and skill for a living.

Charity.The spontaneous will to helpneighbours and strangers in economic dis-tress. It is, however, the spontaneity and,so to say, the undesignedness of the will,that constitutes charity proper. When de-sign is imposed upon it, and " charity


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12 AN ALPHABET OF ECONOMICSbecomes organised and falls under the con-trol of reason, it ceases to be charity andbecomes justice, more or less rude and crude.Organised charity is not usually good jus-tice ; but good justice is organised charity.

Charter. A written grant of rightsmade legally enforceable by the State : alegal endowment of privileges. The historicexample is that of the Great Charter of Johnwhich conferred on the people of England(excluding, however, the class of the serfs,numbering four-fifths of the whole popula-tion !) certain privileges thereafter calledrights. Other examples are provided bythe professions medical, legal, clerical,accountancy, etc. each of which possessesprivileges conferred by Charter and thereforesanctioned by law, entitling them to greateror less degrees of autonomy. A charter forLabour would be an act of the State thatshould confer upon Trade Unions privilegescorresponding to the present privileges ofthe professions : the privilege, for example.


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CHARTERCOLLECTIVISM 1-3of defining membership, of fixing fees forservice, hours and conditions of work, etc.

Collectivism.The twin opposite of In-dividuaHsm. But in each of the pair, thesubdivisions should be noted. What is itthat IndividuaUsm claims ? Individualismclaims both the ownership of Capital and thecontrol of the Industry dependent upon thatCapital. Similarly, Collectivism, as the mereopposite of Individualism, claims both rightsfor the State : the right, namely, of owningCapital and of controlling Industry. But, inffict, there is a difference between Capitaland Industry. Industry, in short, is Capitalenergised by Labour. To own Capital andto control Industry are not therefore oneand the same thing, but different ; and theclaim to control Industry is therefore notnecessarily included in the claim to ownCapital. To own Capital is to own Capitalbut to control Industry is to control theLabour that energises Capital. Collectivism,however, makes no more distinction than


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14 AN ALPHABET OF ECONOMICSIndividualism between the two operations.Like Individualism, it assumes the right ofcontrolling Industry as a consequence of theownership of Capital. In other words, itassumes, like Individualism, its right tocontrol Labour by virtue of its right to ownCapital. On this account Collectivism,which proposes to take over from individualCapitalists the ownership of Capital, andexpects at the same time to take over thepresent power of Capital to control Industry,is nothing else than State Capitalism. ForCapitalism is based on the assumption thatthe title to own Capital is the title to controlIndustry (that is. Labour) ; and this fact isnot altered when the State is substituted forthe present capitalist class.

Commodities.Goods or services sus-ceptible of being bought and sold in a publicmarket. Note that not all goods or allservices are commodities in the economicsense. To become commodities, goods andservices must be of such a nature that, for


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COMMODITIESCOMMUNISM 15the time being, they are in continuousdemand, however hmited, and in continuoussupply. The unique on one side or the otheris excluded. A market defines a commodity,and a market cannot be made by personswhose idiosyncrasies are unique. For in-stance, I may have an article that only oneperson in the world wants and that nobodyelse would buy even at second-handthatarticle is not a commodity. Or somebodymay perform a service for me that he wouldperform for nobody else, and I may pay himfor itbut it is not a commodity. Tocreate an economic commodity there mustbe a reciprocal disposition on the part ofsome men to sell and of other men to buy ;which reciprocal disposition, in fact, consti-tutes the essence of an economic market.

Communism.Has both a Utopian and aneconomic meaning. In Utopia, Communismimplies the community of goods and serviceswithout distinction of personal merit ordesert ; but everybody produces what he


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1() AN ALPHABET OF ECONOMICSpleases and consumes what he hkes. Itassumes the existence in any given societyof a normal desire on the part of its membersto produce at least as much as they consume.Freedom for the natural play of humaninstincts is anticipated to result in a just andfriendly distribution both of the labours ofproduction and the enjoyment of consump-tion. In economics, Communism has amore restricted meaning ; and refers toservices performed by the community (underthe direction of the State) which are partakenof by the members of the community freelyand without payment. The service of theroads and streets, for example, is communal,since the citizen may use them as often ashe pleases without being charged in propor-tion. Street lighting, scavenging, military,police and naval protection are likewisecommon services, differing from such col-lective services as the Post Office, tramways,etc., by the fact that the latter are restrictedby payments ad hoc, while the formerare "free."


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COMPETITION 17Competition.Competition begins whencommodities, having been produced, are

brought to market. The object of thebuyers being to buy as cheaply as possible,and of the sellers to sell as dearly as possible,the struggle between them, which is finallyterminated by a price, is called competition.The competitive system is thus, as it were,superimposed upon the productive system.Production concerns values ; competitionconcerns prices. From production to com-petition is a transition from value-creatingto price-fixing ; and the competitive systemis one in which prices are left to be decidedby the play of the market.

CoMPETiTiox AGAIN.Essentially Com-petition is sale by auction, and usually with-out reserve. All buyers and sellers are ineffect both buyers and sellers ; for the buyerswhen they buy are selling the liquid com-modity of money for a fixed commodityand the sellers when they sell are buying aliquid commodity for a fixed commodity. In

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18 AN ALriTABET OF ECONOMICSevery market operation, therefore, betweenbuyers and sellers there is competition onboth sides, each desiring to obtain as muchas possible of the commodity (liquid or fixed)which he wishes to buy in return for as littleas possible of the commodity (liquid or solid)whicli he wishes to sell. And the price atwhich the exchange takes place is determined,as in an ordinary auction, by the relation ofthe number and appetite and spending-powerof the buyers to the sellers. In a number ofthese transactions, it is true, a reserve priceis placed on the commodities offered forbidding and exchange ; and these com-modities are withdrawn from the market iftheir price falls below the reserve put uponthem. But in the case of Labour and ofother perishable commodities, a reserve priceis impossible, since the commodities will notkeep or cannot keep themselves for a lateroccasion. Competition is thus all in favourof non-perishable commodities (Capital inparticular) ; but it is all against perishablecommodities, and Labour in particular.


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CONCILIATION 19

Conciliation.Arbitration, as a rule,refers to disputes concerning wages ; it is ameans of arriving at the market-price oflabour when the ordinary means have failed.Conciliation, on the other hand, is usuallyconcerned with disputes as to conditions oflabour, modes and rates of payment, work-shop rates, and the like : disputes, in short,about procedure, etiquette and customs.The task of the conciliator is to examine thegrievances of the two sides and to judgewhich of them is the more considerable ; butalways upon the assumption that both partiesare equally responsible. It is this veryassumption, however, that invalidates the"justice" of every act of conciliation ; for,in actual fact, the two sides are not equallyresponsible, but one is responsible (namely,Capital), while the other is not. Even uponthis footing, nevertheless, conciliation mayproceed, since industry must be carried oneven when one of the parties has no responsi-bility in the matter. Conciliation is thus aCapitalists' device for appearing to be just,


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20 AN ALPHABET OF ECONO]MICSand Labour's device for appearing to bereasonable.

Consumer.That is, of commodities.Commodities being things produced by-Labour acting upon Nature, the consumer isthe person for whose consumption suchthings are produced. He is thus the buyer,as the producer, when he has produced, isthe seller. There are, however, many pointsof interest in the conception of the consumer.In one aspect, he is the last link in the chainof processes that begins with Production andcontinues through Distribution until it endsin Consumption. From another aspect,however, he is the intermediary betweenProduction and Production ; for Productionis not necessarily for the sake of Consump-tion ; while Consumption may equally befor the sake of Production. In other words,while we do not necessarily produce in orderto consume, we may consume to produce.From still another aspect, Consumption in


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CONSUMER 21general stands to Production in general asthe processes of eating and assimilatingstand to procuring and preparing food. TheConsumer is one vast and multifariousappetite which the Producer is perpetually-engaged in attempting to satisfy. AllNature, it seems, is to be " eaten " or con-sumed and assimilated by Man as Consumer ;but it must first be exploited or adapted tohuman consumption by Man as Producer.Yet, as to the old question Do we eat tolive or live to eat ? the answer is Neitherbut we eat because we live, and we livebecause we eat ; so the strict answer to thequestion whether Production is for Consump-tion or Consumption for Production isNeither. We produce and consume becauseit is our nature to. The assumption, more-over, that we produce in order to consume isresponsible for the creation of still anotheraspect of our subject. Assuming productionto be for the sake of consumption, the con-sumer comes to hold a position of superiority-over the producerthe latter being, as it


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22 AN ALPHABET OF ECONOMICSwere, the slave of the former ; and thisaccounts for the relative degradation of theproducer to our neglect of his rights andprivileges. Modern industry is chiefly con-cerned with the consumer, whose interests,appetites, and whims constitute, in effect,commands laid upon the producer. Yet theconsumer is made to pay for the subordina-tion of the producer ; for the same instru-ment by which the producer is enslaved isemployed to enslave the consumer himself.What is this instrument ? It is Capitalism :the possession of both the tools of productionand of distribution. Capital stands, as itwere, between the hands and the moutliand while, by virtue of its possession of thetools of labour, it controls the hands ; byvirtue of its possession of the tools of distri-bution, it controls the mouth as well. Theconsumer, in short, while consenting to thetyranny of Capital over the producer con-sents, at the same time, to Capital's tyrannyover himself


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CONTRACT 23Contract. An agreement between

equals which is legally enforceable, a recip-rocal undertaking each side of which canbe enforced by law. Note that a contractto be valid must be between equals. Everyother form of contract is properly invalid.But equals in what respect ? it should beasked. In respect of economic power.But why of economic power ? Becauseeconomic power (or the ability to maintainhimself) is the only guarantee the individualcan offer that his pledge or undertaking iswithin his choice or discretion to make or togive. A contract in which one of the partiesis forced to accept the terms of the other isnot a valid contract, since it contradicts thespirit of contract which assumes an equalityof choice in both parties. Consider now thequestion of contracts between Capital andLabour. The stigma of Labour is preciselyits inability to make a choice between sellingor not selling itself; while the stigma ofCapitalism is precisely that it can exercisechoice and discretion. It follows that in


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24 AN ALPHABET OF ECONOMICSrespect of the essential conditions of a con-tract (namely, the equality of choice in thetwo parties) Capital has it but Labour hasnot. In other words, the two parties are notequal. But this is to say that there can beno valid contract between Capital andLabour ; and this disposes of the case forCompulsory Arbitration with legal penaltiesfor breach of contract upon either side.

Co-operation.To operate together andin common. Associated action may be forany purpose, good, bad, or indifferent. Theassociation may be between producers,merchants, and consumers ; between buyersor sellers. When it is between sellers, withthe object of maintaining or raising theselling price of their commodities, it is calleda Ring. When it is between buyers, withthe object of reducing the selling price ofthe commodities they must purchase, it iscalled specifically Co-operation. The Co-operative movement in particular is a move-ment of retail consumers towards common


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CO-OPERATIONCO-PARTNERSHIP 25action designed to enable them to buy cheapagainst the efforts of the producers tosell dear.

Co-Partnership. A fancy name forprofit-sharing, invented to deceive wage-labourers into believing themselves a kind ofpartner with Capital. Partnership, however,involves the sharing of partners in controlin exact terms, in the control of Capital.For Capital is to Industry what a spring isto a watch-wheel : it is what makes it go. InCo-partnership, in general, the share or parttaken by workmen is, at best, a share in theindustry ; and, at worst and more usually, ashare only in the profits. In no case does itadmit the workmen to a part in the controlof the Capital. It may be said, however,that under certain schemes the workmenmay become shareholders even in the Capitalof an industry itself. This is true ; but thecontrol is still unreal and devoid of the spiritof partnership in that the voting for the


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26 AN ALPHABET OF ECONOMICScontrol of the whole Capital is by sharesand the major shares outvote the minorshares upon every occasion. Partners, onthe other hand, are equal.

Craft.Properly speaking, a craft is anycomplete industry that can be carried out bya single person. Tailoring, for instance, is acraft; cabinet- making, hedging and ditch-ing, wood-carving, are crafts. With thedivision of labour, however, crafts tend todisappear. Industry ceases to be dividedinto separate crafts, and tends to becomedivided by jjroccsses. Men engaged onprocess-work, though skilled, are not crafts-men, but workmen ; and since their numbersare always on the increase relatively to thenumber of craftsmen, the direction ofmodern industry is away from crafts andtowards industrial workmanship. It is forthis reason that industrial unionismor theorganisation of workmen by industriesisdisplacing craft-unionism or the organisationof men by crafts.


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CREDIT 27

Credit.Its associates and kinsmen arebelief, faith, confidence. For instance, mycredit is good if my promise is believed, ifconfidence is felt in my ability and willing-ness to keep my word, if faith is put in mypledge. Credit is thus in general a belief ina man's ability and will to perform wliat heundertakes to perform. Willingness, how^-ever, though important, is not everything.It is not even the greater of the two factorsin credit, namely, willingness and ability.For assuming the ability, the will can becompelled, and Law is there to compel.Hence ability, even more than willingness,has to be looked into before credit is secure ;since, unlike will, ability cannot be com-pelled. The usual procedure is, therefore,to require, as a condition of credit, that areasonable ability exists to make it good.This, however, may be and often is highlyspeculative ; but it must, at least, have asolid basis. For instance, it is speculativeto give credit, as an English companyrecently did, on a hundred thousand acres


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28 AN ALPHABET OF ECONOMICSof newly planted wheat in Canada. It isspeculative to buy the cherry-yield of anorchard still in bloom. It is speculative tolend upon the prospect of the production ofa mill. It is speculative to give credit upona less amount of gold than the sum of thecredit. But in each instance there is a solidbasis, which may be said to be the seed ofwhich the credit represents the developedfruit. But this seed is capital. Hencecredit may be regarded as the future ofcapital, and as only as speculative as thefuture itself By means of credit we candeal with the future as if it were presentthough always at the risk that the futurewill not turn out as expected. It is thisrisk in prophecy that accounts for thedelicacy of credit.

Demand.In its personal form. Demandconsists of all the buyers, potential andactual, in a given market. Note that theymust be potential buyers that is, they musthave money to spend. A demand that is


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DEMAND 29not accompanied by ability to pay is nomore an economic demand than a manwithout money is a potential buyer. Hemay want to buy, he may need the articleurgently, but if he has not the means his isnot an economic demand. You have seenpeimiless children flattening their nosesagainst sweet-shop windows. What a de-mand in the human sense is apparent there !But it is not an economic demand, since thechildren are not potential buyers. Economicdemand thus implies two things : a will tobuy and an ability to buy ; a will and apower, in fact. And in the absence of eithera demand is ineffective or non-existent.Now let us consider each of these twofactors of economic demand. The will tobuy can be both organised and stimulated ;and it is to the interest of the seller that itshould be. The reason is obvious. Themore buyers there are, and the more in-tensely they wish to buy, the higher the pricethey are willing to pay. If you have everhad a sale of your furniture you know that


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30 AN ALPHABET OF ECONOMICSthe success of a sale, from the seller's pointof view, depends upon the number andeagerness of the bidders present. The sameis true of every market. The means bywliich would-be sellers stimulate demand (inother words, increase the number of biddersor intensify their desire to buy) are many,the chief nowadays being advertisement.Tlie object of all commercial advertisement,in fact, is to stimulate demand in one orboth of these two ways. But not only candemand, when once it exists, be stimulated,it can be brought into existence. \A^ould-be sellers of an article for which at firstthere are no buyers may make people wishto buy, and so create an economic demand.A good part of modern production, indeed,is carried on to satisfy created demands, andnot intense or spontaneous demands ; andsuch demands, before they come actuallyinto economic existence, are called potentialdemands. The second factor, the ability topay, is not within the control of the seller.He cannot, that is, increase the purchasing-


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DEMANDDISTRIBUTION 31power of his would-be customers. No, butwhat he can do is to stimulate their will topay more. Suppose, for example, a man hasa sovereign to spend which ordinarily he laysout in twenty articles at a shilling a piece.Tlie seller of one of these articles cannot giveliini more than a sovereign to spend ; but hemay induce him, by one or another means,to forgo one of his usual articles, and topay two shillings for the seller's. The objectof all sellers, in fact, is precisely this : toextract from the customers' purchasing-power as much as possible in return for aslittle as possible.

DiSTRiEUTiON.That is, of commodities.Production being the sum of the processesnecessary to bring commodities to marketwhere they constitute SupplyDistribu-tion may be taken to mean the sum of theprocesses by w^hich, when produced, com-modities are distributed. Upon one prin-ciple of distribution it would seem that thefairest method of distributing the com-


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32 AN ALPHABET OF ECONOMICSmodities created by Production would be todivide them among the producers in theproportion of the contribution of eachproducer to the final production. This isthe meaning of the phrase : the product tothe producer. Upon another principle, how-ever, it would appear that the fairest way todivide the product would be to distribute itaccording to the needs of the producersand this gives us the meaning of the phrasefrom each according to his means, and toeach according to his needs. Still anotherprinciple of distribution is to allow theproduct to be divided in accordance withthe respective strength of the parties thatdesire or need it. This is the principle ofthe pig-troughwithout, however, a watch-ful sow^ or farmer to see that Antony doesnot suffer by reason of his weakness ! Itis also, alas, the principle of distributionthat prevails in modern competitive humansociety. Economic power precedes and de-termines the distribution of commodities.He that hath shall take, and from him that


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DIVISION OF LABOUR S8hath not shall be taken away even that hehath.

Division of Labour.Is the economicutilisation of labour. Theoretically, manis capable of many forms of labour. Prac-tically, however, he can perfect himself onlyin one or two forms. Economics, therefore,suggests that for the purpose of perfect pro-duction, only those forms of labour shouldbe employed in which a man can becomeperfect. That this perfection of a singleability may be at the expense of the totalability of the man himself is economically ofno importance ; for it is better, from aneconomic point of view, that a man shouldbe perfect in one thing than imperfect ineverything. In the processes of production,as viewed by the Spirit of Economics, whatis sought is the ability of every contributorwhich can be most readily perfected ; andonly when every stage is performed perfectlyis the whole perfectly carried through. Thedivision of labour is thus designed to bring

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34 AN ALPHABET OF ECONOMICSperfection to bear upon every part of pro-duction. It sacrifices men to things.Dumping.A remainder sale outside the

main market. As there camiot be two pricesfor the same thing in the same market,and the object of all commercial marketingis profit, it sometimes happens that in any-given market, the maximum of profit canbe made by selling at a price which else-where would not be offered. Sellers willthen satisfy one market at that price, andestablish another market for the remainderof their goods at another and a lower price.And this operation of selling goods cheaperin one market than in another is calleddumping. The fact that nowadays everycountry tends to become a single marketaccounts for the further fact that dumpingis now usually a foreign operation.

Economics.Is the science of production.The end proposed in economics is the production of the maximum amount of goods


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ECONOMICS 35and services with the minimum expenditureof labour. To look at production with theeyes of the economist it is necessary to setaside human considerations, except in so faras they are assumed. There is, we know, ascience of strategy and tactics in warfarewhich is, as a science, independent of thehuman element. Or, rather, the humanelement is only one factor of the problem.When Wellington weighed his army in thePeninsula before engaging in battle he wascalculating strategy as a problem of thescience of dynamics. Given a certain weightof a given density moving at a given velocity,what resistance could it overcome ? Butthis did not prevent AVellington from weep-ing over the loss of life involved. Similarly,it is a mistake to suppose that becauseEconomics confines itself to the means ofmaximum production it is soulless. Thesoul of economics is politics, and it is topolitics that economics relegates the controlof questions such as what shall be produced,by whom, and how the results shall be dis-


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36 AN ALPHABET OF ECDNOMICStributed. There is presumably a perfecteconomic science in heaven ; but it isordered with perfect political art. On earth,economics is very imperfect ; and politics ismore imperfect still. As a science pure andsimple the aim of economics is to economisemore and more in the means of production.This economy can be brought about inseveral ways : for instance, by a moredexterous employment of the same means,or by the substitution of a less costly meansfor a more costly. An example of the firstis organisation. Ten men organised areequal in productive capacity to twenty ormore unorganised. An example of thesecond is the use of machinery instead ofhuman labour. How far this process can becarried nobody can tell ; but the direction,other things being equal, is clear. We cansay that the perfect economic means of pro-duction would be natural forces that requiredno labour on the part of men to manipulate,and that, at the same time, did not exhaustNature. (For there is an economy of natural


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ECONOMICS 37resources as well as of human labour.)Hence economics progresses as it enablesproduction to dispense with work while stillmaintaining output at its maximum. Tosatisfy all our needs and desires withoutwork is really the aim of economic man. Itis his object, in fact, to reverse the curseupon Adam. Unfortunately, politics, as wehave said, does not keep pace with economics.Already any civilised community is suffici-ently advanced in economics to provide allits members with most of the desired com-modities and with a fair amount of leisure ;but politics intervenes to forbid this distri-bution being made common. Instead ofrequiring the improvements in economics tobe shared equitably, politics insists upondividing them inequitably, so that one smallclass is enabled practically to lift from itselfthe curse of Adam (that is, it can live withoutworking), while the large class of labourersare permitted to incur a double cursetheywork, that is, without living. Economistsof the baser sort or who have no political


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38 AN ALPHABET OF ECONOMICSsense pretend tliat this distribution of theproduct is itself economic in that it enablesthe few to secrete Capital (that is, to save)and to foster arts and sciences requiring along, leisured, and assured future. Betterknowledge, however, convinces us that it isnot safe to depend upon a social class for aneconomic function. What necessity, we mayask, is there for the rich to save and thus toaccumulate Capital ? None whatever, whenonce their normal appetites are reasonably-satisfied. But this involves society in thedifficulty that Capital may one day cease tobe saved by the wealthy, in amounts, at anyrate, sufficient for society's progress. Arewe not already near this point, when we seethe State called in to help the rich class outof their difficulties ?

Economic Terms.Generahsed or ab-stract terms facilitate discussion amongpersons technically interested in the theoriesof economics ; but at the risk (or, rather, inthe certainty) of confusing the lay mind.


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ECONOMIC TERMS 39In these notes we are as far as possible re-concretising such terms and reducing themto their common and real meaning. Thefactors of industry are, after all, under thecontrol and direction of various classes ofmen. As behind the abstraction Labour wefind labourers : so, behind Rent, Interestand Profit, we find landowners, money-owners, and tool-owners respectively. Thewhole system of industry is thus seen todepend upon an association of classes ofpersons, each class holding some elementnecessary to the total production. Finan-ciers hold the money, for the use of whichthey demand the price called Interest.Landlords hold the land, etc., for the use ofwhich they demand the price called Rent.And Capitalists hold the secondary tools(machinery and the like), for the use ofwhich they demand the price called Profit.Below this trinity of persons who derivetheir income from the rent paid for the useof their property, come the persons whoactually use it, the labourers. And these we


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40 AN ALPHABET OF ECONOMICShave subdivided according to the way inwhich they are paid into (a) the salariatthose, that is, upon a salary reckonedannually, as a rule ; and {b) the proletariatthose whose payment is revisable weekly.By their manipulation of the property of thethree former classes the two latter actuallyproduce all that is produced. And withoutthem is nothing produced.Economy.The production of Maximum

values by Minimum means. Note that theobject of Economy is the production ofvaluesthat is, of satisfactions ; and thatthere are two parts of economy (a) theincrease of the values of commodities, and(b) the decrease of the labour spent in pro-ducing them. Whoever discovers the wayto increase values without increasing thecost of producing them is a practicaleconomist. And he is also a practicaleconomist who discovers a way to reduce thelabour spent on producing commoditieswithout reducing their values. Economy,


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EFFICIENCY 41therefore, implies value-increasing or labour-saving.

Efficiency.The highest efficiency con-sists in the extraction from a tool of produc-tion of the maximum utility by the minimumof exertion. The tools of production are(a) elemental^land in the economic sense ;(b) capitalmachinery, etc. ; and to thesehave been added by social prostitution,{() labourers or the proletariat. The effi-ciency spoken of by modern economists takesno account of the specific differences betweenthese three classes of tools, but includes themall as tools to be exploited for their utilityby means appropriate to each. The efficientuse of Land, for example, requires, insome instances, intensive culture or specialmanuring : these are needed to bring outand to utilise its fullest powers. The econo-mic development of I^and is, in fact, theprogressive efficiency of the means of pro-duction applied to it. The efficient use ofMachinery, again, requires the application


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42 AN ALPHABET OF ECONOMICSand maintenance and skilled use of the rightkind of machinery in the riglit place. Notany machine anyhow used is labour-saving,but only some machinery properly used, andunder proper conditions. The aim of econo-mic efficiency is to discover these con-ditions, and to apply and employ themachinery to fit them. Now let it be saidthat the same considerations are applied tothe tool of Labour as to the other tools ofindustry. Labour also can be more or lessefficiently employed. If employed efficientlya little goes a long wayin other words, itapproaches its maximum of utility. If, onthe other hand, it is employed inefficiently,much of it is wasted. The capitalist employer,as an employer simply, is not in the leastconcerned with what becomes of the labourerfrom whom labour is most efficiently ex-tracted, or with what becomes of the labourerwho cannot economically be made use ofany longer. It is no more a question forhim, engaged, as he is, with the problem ofmaximum production at the minimum cost,


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EFFICIENCY 43

what happens to an obsolete or overworkedlabourer than is the question wiiat happensto an obsolete machine, or an over-tappedrubber-tree. The fact that the presentmaximum utility has been extracted fromhim takes him automatically out of thepurview of the employer into that of thesalvage-corps, or the rag and bone merchants(called by the fancy names of Labour-ex-changes and Charity). But how is Labour effi-ciently employed in the practice of capitalistproduction ? As has been said, the samegeneral rules apply to Labour as to any othertool. First, it must only be employed when acheaper substitute cannot be found for it.Second, it must be economically usedthatis, as little as can be done with must be suffi-cient. Third, the employer must always beon the look-out to increase its efficiencywithout adding to his own costs, or, on theother hand, for cheaper substitutes for it. Ofthese two last subdivisions, the former takesshape in such employers' devices as organi-sation, technical instruction, speeding up,


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44 AN ALPHABET OF ECONOMICSpieceworkdevices rendered familiar by themethods ofthe Munitions Ministry. And thelatter takes shape in (a) the current tendencyto employ cheap women rather than dearmen ; (b) the world-wide tendency to exploitextensively the cheap races rather than tocontinue the intensive exploitation of themore civilised races ; and (c) the universaltendency to displace men by more and morecomplicated machinery. Economically, allthis efficiency has its good side ; for it isobviously economic to do as much work aspossible with as few means as possible. Butsince Labourers have nothing to sell buttheir labour ; and since the less the demandfor their labour, the lower its price or wagemust be, every advance in economic efficiencyis at the first charge of labourers. Labourand Efficiency are thus necessarily at war ;and this is seen most clearly in the restrictiverules of Trade Unionism. Trade L^nionismis thus undoubtedly an obstacle to Efficiencyin the economic sense ; but only because itopposes Humanity to Efficiency. But why


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EFFICIENCYEMPLOYER 45should Humanity and Efficiency be opposed,when, by lifting Labourers out of the categoryof the tools of industry into the category ofthe industriahsts, the two interests might bereconciled ?

Employer.One who undertakes to bringLabour to Tools and to produce profits outof their products. He is to be distinguishedfrom the Capitalist as the landowner is to bedistinguished from the practical farmer.Capitalist and Employer may, of course, bethe same person ; as landowner and farmerare sometimes the same person ; but the factthat the two functions are separable provestheir real difference. What, in erfect, doesthe employer who is simply an employer do ?He borrows Capital of the Capitalisttools,that is, of the man who owns them(andthese include money or currency)and hethen proceeds to buy Labour to work them.Acting under his direction, Labour appliedto Tools produces commodities out of theselling-price of which the employer pays the


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46 AN ALPHABET OF ECONOMICSrent charged by Capital (in the form of Rentand Interest), taking the remainder in Profitfor himself.

Employment.This is a fancy name forthe good old English word hiring. Smittenwith moral qualms on finding themselvesactually hiring men as if they were cattleor land, Capitalist sentimentalists chooseto disguise from themselves the operationof hiring men under the title of employingmen. But the fact can only be disguised,it cannot be concealed. Employment isnothing but hiring ; and a man in employ-ment is nothing more than a hired servanta creature of much less consideration thaneven a prodigal son. It is true that thingscan be hired without bringing disgrace upontheir owner ; and it might, therefore, besupposed that Labour could be hired withoutlowering the status of the labourer as a man.The distinction, however, ought to be cleareven to the blind. A thing can be hiredwithout its owner ; but labour cannot be.


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EMPLOYMENTEXCHANGE 47Its owner, the labourer, has to go with it.Hence, to employ or to liire labour is toemploy or hire labourers. And there is noescape from this conclusion. Employmentis plentiful when the hirers are many or thelabourers to be hired are few. It is scarcewhen the hirers are few, and the labourers tobe hired are many. But why are there mento be hired and men to hire them ? Becausethere are men without the tools of industryand the men with the tools. A tool-owneris a hirer ; a tool-user is a man to be hired.Exchange.The reciprocal transfer of

commodities of equal market price in termsof a common currency. The operation ofExchange takes place in every act of buyingand selling ; and it assumes the existence, atthe moment of exchange, of an equivalenceof values. How either commodity comes tobe present at its price and what value in useit may possess are of no immediate concernin exchange. Exchange is under the signof the Scales or Balance. Impartially it


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48 AN ALPHABET OF ECONOMICSweighs out price against price, regardless ofvalues.

Exploitation.There are two forms ofexploitation : the exploitation of Nature byMan ; and the exploitation of Man by jNIan.The former is wholly good ; and is the work,in the largest sense, of Science. The latteris wholly bad, and is the work of Capitalists.Natural exploitation consists in the extrac-tion by art from Nature of things useful tomen as men. Capitalist exploitation consistsin the extraction by artifice from labourersof their I^abour-power. But it is obviousthat Labour-power (including strength, skill,and intelligence) is itself the only means ofexploiting Nature. Capitalist exploitationis thus not the exploitation of Nature, butthe exploitation of the powers that exploitNature. It is, in short, the robbery of thenatural exploiters.

Finance. The Money industry. Asproducing, exchanging, buying and selling of


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FINANCEFISCAL OR TARIFF REFORM 49Cotton constitutes the Cotton industry, theproduction, exchange, buying and selUng ofIVIoney constitutes the Money industry orFinance. What is Money ? A legal claimupon commodities, actual or prospective.Finance thus deals with claims upon com-modities ; in other words, with title-deeds tocommodities. The creation and exchange ofthese title-deeds is the function of Finance.

Fiscal or Tariff Reform.Unregu-lated exchange of commodities between in-dividuals of one country and another iscalled Free Trade ; and every proposedregulation, calculated to restrict the libertyof the individual in this respect, is advocatedas Fiscal Reform or Tariff Reform. A Tariffalready assumes the existence of regulations ;and in this sense a Reform of the Tariff issomething designed to improve the existingregulations. All Tariffs are intended tohandicap certain buyers or sellers in a givenmarket. Their object is to maintain or

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50 AN ALPHABET OF ECONOMICSincrease prices to the advantage of otherbuyers and sellers.

Free Trade.Implies the absence of anyartificial handicap on any of the buyers andsellers in the same market. If you havebeen to a local flower-show, you havecertainly seen that various groups are classi-fied as (a) open only to the locality ; (b) opento all England ; (c) open to the world. Olthese three groups the third only is FreeTrade, since it contains no restriction, withinthe power of the authority to impose, uponcompetitors anywhere. It is true, of course,that Nature imposes restrictions, even whenthe authority declines to do so. For in-stance, in the case of the show abovementioned, while so far as the authority isconcerned, there is no restriction upon com-petitors in Group III., there is, in fact, therestriction imposed by time and space.Nevertheless, nobody can complain, sincesuch restrictions are beyond human control


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FREE TRADE 51and thus the competition, humanly speaking,is rightly said to be free. Now, what arethe reasons that would lead an authority,ha^'ing power to restrict competitors, actuallyto impose restrictions upon some ? In theabove-mentioned case, the object of theauthority in limiting the competition inGroups I, and II. by disqualifying competitorsoutside the locality or England, would be toensure that the prizes went to their ownlocal or national people. In other words,the fear is implied that in open competitiona foreigner would take the prize. Verygood ; but suppose that the purpose of theshow were not the award of prizes, but thesale at the lowest possible price of com-modities in demand by the visitors. Sup-pose, in fact, that the show were a market.Restrictions placed upon competitors wouldthen clearly be intended to enable the privi-leged competitors to sell their goods at ahigher rate than the rate at which theexcluded competitors would sell theirs. Inother words, the object of restricting open


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52 AN ALPHABET OF ECONOMICScompetition in the market is to keep upprices on behalf of privileged competitors.

Function.There are two kinds of func-tion in economics : a passive function andan active function. A passive function isperformed by any factor in production whichhas no choice but to be used as it is. Anactive function, on tlie other hand, is per-formed by any factor which, as well as beingnecessary to industry, has the choice of howit will be used. To the former belong allinanimate objects, raw materials, and thelike, together with animalshorses, stock,etc. These, plainly, have a use and thereforedischarge a function in industry ; but, asplainly, they have no choice in the matter,and hence do not discharge an active func-tion. To the latter belongs Capital, which,being necessary in industry, and at the sametime having a choice whether it shall beemployed or not, exercises, by virtue of itsability and power to choose, an active func-tion. Where, now, shall Labour be placed ?


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FUNCTIONGUILD 53Is Labour to be classified with raw materials,cattle, etc., as being useful, and, indeed,indispensable in industry ; and yet as notbeing free to be otherwise ; and hence as notexercising an active function by definition ?Or is it to be classified with Capital, ashaving the power to give or to withhold itsservices at its own discretion ? There canbe no doubt about the reply. From the factthat Labour is no more able to withhold itsservices to industry or to choose the use towhich they shall be put than are horses orinanimate materials, Labour's function inindustry is passive and not active. In sliort,the only active functions in industry are thefunctions discharged by Capital, since Capitalalone has the power of withholding itself.

Guild. A Guild is a self-governingassociation of mutually dependent peopleorganised for the responsible discharge ofa particular function of society. Guildsorganised for the function of a particular


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54 AN ALPHABET OF ECONOMICSindustry over the whole area of the nation arecalled National Industrial Guilds. Guildsorganised over the same area for suchfunctions as Medicine, the Law, Religion,etc., are called National Professional Guilds.

And Guilds organised to discharge Statefunctions are called State or Civic Guilds.Industry. The means of adapting

Nature (including Human nature!) to humanuse as defined by the requirements of themarket. The generalisation to bear in mindis of Nature on the one side, with its rawmaterial ; and of Man with his appetites andingenuities on the other side. The applica-tion by Man of his active ingenuities toNature is industry ; and the resultant com-modities represent Nature adapted to hisuse. Industry is thus Man's means ofmaking a conquest of Nature ; or, if youprefer it, it is his assimilation of Nature.Nature made assimilable by man as a resultof industry becomes an economic com-modity.


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INDUSTRY 55

An Industry. In general, Industry isthe organised and intelligent application ofLabour to Nature for the purpose of produc-ing human utilities. In this particular, anIndustry is the sum of processes by means ofwhich a particular form of exploiting Natureis carried on. An Industry thus includesevery process necessary to bringing a pieceof Nature to the human market ; and itsscope is therefore defined by the character ofthe commodity and by the character of theNature fi'om which it is derived. The classi-fication of men's needsneeds, that is, thatbecome effective demands, for needs withoutmoney in their hands are not demands in theeconomic sensegives us, in general, theclassification of industries. Every industrybeing a mode of applying Labour to Naturefor the satisfaction of man's demands pre-supposes a human demand corresponding toits proposed supply ; and hence it followsthat a classification of human psychology isat the same time a classification of industries.An organised society is one in which not


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56 AN ALPHABET OF ECONOMICSonly is every industry organised for themost efficient available method of exploitingNature ; but in which industries find them-selves valued in the scale of the needs towhich they correspond. In short, a nationalorganisation of industry is a Man writ largeand in terms of his powers over Nature.

Instruments of Production.The in-struments of production are usually sup-posed to be three : I^and, Capital, andLabour. But of this classification two im-portant criticisms must be made. First, it isbecoming clear that the functions of Landand Capital are inseparable, so that thedifferentiation of the two will soon cease tobe even theoretically possible. And, second,there is no such thing as Labour ; there areonly Labourers. Land in the most recenttext-books is defined as the sum total ofqualities existing in Nature which can afltbrduseful products when labourers apply theirenergy and skill to them. Capital, on theother hand, is ordinarily confined to the sum


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INSTRUMENTS OF PRODUCTION 67

of those products which in turn are themeans to subsequent products. Both, how-ever, should be regarded as of one kindnamely, as toolsLand being, in general, anatural tool ; and Capital being, in general,an artificial tool. The means of Productionare thus seen to be two, and two onlyTools (Land and Capital) and Labourers(or Labour). All wealth is the Creation ofLabourers employing tools. Man as a pro-ducer is only a tool-using animal. Onlytool-users are wealth-producers.

Interest.The question of interest onmoney is often confused with another, thatof allowance for depreciation. A capitalistemployer will sometimes assure his workmenthat he must charge the business with in-terest on his capital (as well as with profits,of course), because the interest is to replacethe capital as the latter is used up. Nothing,of course, is more sensible than to provideout of income from capital the means toreplace the original capital when it has been


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AN ALPHABET OF ECOxNOMICSexpended. Every machine in use mightfancifully demand to have a penny put intoit for every minute it is used, the sum to beemployed in paying for repairs or for renewal.But this allowance for depreciation withwhich to make a fund for renewal is verydifferent from Interest. Interest is the Rentof the Monopoly of Currency and hasnothing to do with renewing anything. Ithas no more economic relation to Capitalthan Rent has to Land. And exactly asRent would cease to exist if competitionwere made to cease between the holders ofthe monopoly of Land, Interest wouldcease to exist if either (a) the monopoly ofcurrency-making were resumed by the Stateor (6) abolished altogether ; for in eithercase the competition would cease.

Investment.An investment is a pur-chase of Capital for the sake of profit.There are tw^o factors in production, namely,Capital and Labour. By virtue of itssuperior organisation (concentration) Capi-


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INVESTMENTLABOUR 59tal, however, is able to employ Labour andhence to take its products. The surplus ofproducts over costs of production, Capital,still by virtue of its superior organisation,takes for itself under the name of Profits,and these are distributed among the investorsin the proportion of their investments. Aninvestment thus becomes a legal claim toshare in the profits which Capital makes byemploying Labour.

Labour.As said elsewhere, Labour is apure abstraction that has no place in aconcrete science like that of wealth-produc-tion. Land and Capital have a materialexistence apart from human beings ; but,take human beings away, and where isLabour ? Thus we should speak of La-bourers, and not of Labour, and refer to thesurplus or defect, the supply or demand, theprosperity or adversity of Labour as meaningthese things of Labourers or Workmen. Asurplus of Labour, for example, means asurplus of workmen. A bad time for


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60 AN ALPHABET OF ECONOMICSLabour means a bad time for workmen, andso on. Of Labourers there are two maindivisionsthe manual and the professionaland of each of these there are, again, twosubdivisions : the first consisting of unskilledand skilled workmen, and the second ofclerical and professional w^orkmen. Theformer compose the proletariat and thelatter the salariat. Their common charac-teristic is that they are tool-users, anddepend wholly for their living upon w^hatthey can obtain by using the tools of produc-tion. They are to be distinguished carefullyfrom men who in all other respects look andbehave very much like them : the tool-owners or Capitalists.

Labour as a Monopoly.Labour, beinga commodity like others, tends like them tobecome a monopoly. The question is whosemonopoly ? The distinction of Labouramong other commodities is that thelabourer, besides being a commodity, iscapable of being himself the director and


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LABOUR AS A MONOPOLY 61controller and user of it. This makespossible, in the case of Labour, two forms ofits monopoly : one, in which all Labour isowned by somebody else, and the second, inwhich the Labourers themselves own theirown commodit}^ that is, possess a monopolyof it. If, for example, the Trade Unions ofthis country should become blackleg-proofin other words, if they should control in eachindustry all the labour necessary to it, theywould then be in the position towards labourthat the Coats' are towards cotton-thread.And they could use their monopoly for theirown advantage. If, on the other hand, bybeing too stupid to make a Trust of Labouron their own account they leave it to some-body else, two sets of people are ready tomake a monopoly for them, and to use it fortheir advantage. One set is the State ; theother set is the employing classes, or Capital.In either case, it will be seen that the useof the monopoly is out of tlie hands ofLabour itself; and it has no more controlover its employment than a dead commodity


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62 AN ALPHABET OF ECONOMICSlike cotton. State-owned the monopoly ofLabour will be employed to serve theinterests of those w4io control the State.And since these are also the capitalist classes,it makes little odds whether Labour is mono-polised indirectly for the employers by theState or directly by the employers them-selves. When the monopoly of Labour isin the hands of anybody but the Labourers,Labour is then called servile.

Labour Market.A market we havedefined as a general disposition to buy andsell. There need be no geographical centre.For instance, there is a market for rarestamps ; but its transactions are carried onmainly through the post. The labour marketsimilarly is everywhere. Where there existsa man disposed to sell his labour, and anotherman disposed to hire it, agreement betweenthem constitutes a transaction of the uni-versal labour market. But why do men offertheir labour in the market for sale ? Andwhy, again, do buyers come and buy it ?


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LABOUR MARKET 63To the first question the reply is that, saveby selHng their labour-power, the majorityof men have no means of getting a living.Even, therefore, though the sale of theirlabour involves the hiring-out of their person

which is tantamount to a contractualslaverythey must needs sell their labouror starve. Necessity it is, then, that drivesthe workman to market himself. To thesecond question the reply is that the buyersof labour-power are the owners of toolswhich, without human labour, are useless.Having acquired possession of the tools,employers must then liire men to operatethemmen being, from the employers'point of view, operating tools themselves.With what, we may now ask, does theemployer pay ? He pays with a credit noteupon the product of his men's labour-powerapplied to tools. This can be clearly shownby an example. Suppose a ship containinggrain stranded upon a desert island. Thecaptain, being the proprietor too, has it inhis legal power to refuse the use of the grain


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64 AN ALPHABET OF ECONOMICSto his men except upon his own terms.Roughly, lie may act as follows : In con-sideration of the men undertaking to crushand prepare the grain for food, he may givethem a note entitling them to a certainshare of the flour, etc., they pi^oduce. Thisnote is their wage ; and it is obviously paidout of their labour upon the grain. Finally,we may ask what determines the share thewage-earner receives of his own labour-pro-duction. The answer is, that his share isdetermined by the supply and the demandof labourers like himself. If, in the fore-going instance, the captain would himselfstarve but for the skill of one of his men,that man has an equal power with the captainand could command equal control over theproduct. If there are two men they aretogether (unless they combine) only equalto the captain. If there are three, each ofthe three is one-third of the captain. Andso on. AVithout combination, in short, allthe men employed by an employer aretogether only equal to himand that is


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LABOUR MARKETLABOUR-SAVING 65under the conditions just mentioned. When,as happens in society, men never combineeffectively, they are not even the equal ofthe employer; but must take the lowestshare that any man existing within reach ofthe employer is willing to accept. In a freelabour market, the labourer's price approxi-mates to that of the cheapest of his fellows.

Labour-Saving.In concrete terms,Labourer-seLving. Any process, method oforganisation, or other means is said to belabour-saving that has the effect of produc-ing the same amount of commodities withfewer labourers. In the eyes of the em-ployer whose one object is maximum profit(or greatest surplus of selling-price over costof production) every item of cost that entersinto production is a legitimate subject forreduction by every possible means. Toreduce the cost of his raw materials by (a)buying them more cheaply ; (b) findingcheaper substitutes for them ; (c) using themmore economically, and so on, is plainly his

5


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66 AN ALPHABET OF ECONOMICSbusiness. But it is no less his business toreduce the cost of tlie labour he mustemploy by any of the means he uses toreduce the cost of his other materials. As,for instance, he reduces the cost of his rawmaterials by buying them more cheaply, sohe may reduce the cost of his labour bybuying labour more cheaply, that is, byreducing wages, which is the market-priceof labour. Again, as he saves material costsby using cheaper substitutes or by using hismaterials more economically, so he may savethe cost of labour by using mechanical sub-stitutes for labourers, or by training, organis-ing and managing his labourers better. Theend in view, in both cases, is the same ; and,in fact, there is no difference economicallybetween the two items of cost. The end isto reduce costs ; and the common means isto save labour-material. To save labour,however, is to reduce the demand for labour.The more labour saved, the less is thedemand relative to the supply. And sincethe price of Labour is determined by the


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LABOUR-SAVINGLAISSER FAIRE 67relation of its Supply to its Demand, any-thing that reduces Demand while leavingSupply undiminished tends to reduce theprice of Labour in general. In short,Labour-saving is Labour-cheapening ; andthat is its economic object.

Laisser Faire. As applied in Eco-nomics, Laisser Faire is the doctrine thatclaims for the individual complete freedom,at his own risk, to make, to buy and to sell,w^hat, where and as he can. Such a freedom,however, is incompatible with human society;and it is only fair to say that the ManchesterSchool employed Laisser Faire rather as adirection than as the goal itself. Whatthey demanded was as much freedom aspossible, as little restriction on the individualas possible ; and that every proposed re-striction should be specially justified as adeparture from the normal, and not taken asa matter of course. Within a certain area ofpossible economic activity, it was universallyagreed that Laisser Faire should not be


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68 AN ALPHABET OF ECONOMICSadmitted. For instance, burglary is a meansof procuring wealthand Laisser Faire,strictly interpreted, would appear to appro^eof it ; but no economist or practical manw^ould push his theory to the inclusion of theburglary profession. Similarly, commonlyadmitted forms of unfair dealing, falsificationof trade-marks, misrepresentation, etc., wereby common consent ruled out of court asexamples of freedom which even LaisserFaire would restrict. At the other extremethere was, however, an area of economicactivity in which the Manchester Schoolwould claim really complete freedom : in theemployment of labour, in the fixing of wagesand conditions, in the matter of prices andmarkets. And between these two extremesof no liberty whatever and no restrictionwhatever there was a debatable area (thepolitical playground of the nineteenthcentury) in which economic activities werethe subject of a kind of tug-of-warone sidewishing to place them under restriction,while the other side would have them free.


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LAISSER FAIRE 69

(The most notable examples were the tradein human beings called slavery ; and thetrade in human labour called factory employ-ment.) This area is still far from beingcompletely marked outas the demand forthe abolition of the wage-system clearlyproves. But the criterion is becoming moreclear. Plainly freedom is not a criterion initself, or we should see with every step ofprogress a fresh extension of freedom down-wards as well as upwards. JMore and moreeconomic activities would become legitimateif, in fact, freedom were the criterion ofprogress. But neither is restriction in itselfa criterion. Restriction for the sake ofrestriction is no better a guide than freedomfor the sake of freedom. What is, then, theproper criterion ? We can see it as clearlymanifested in the agreement to excludeburglary from economics as in the agreementto admit emulation : it is the spirit of thecommunity. The conclusion is that what isor is not to be left to Laisser Faire must bejudged by the spirit of the community. The


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70 AN ALPHABET OF ECONOMICSwelfare of Society, and neither Liberty norRestriction, is the true criterion of theprovince of Laisser Faire.

Land.As an example of the extendeduse in economics of the term Land, we maypoint out that Land includes Water andAir. A fisherman who ploughs the sea forfish or a chemist who extracts nitrogen fromthe air differs in no essential respect from afarmer who tills and sows a piece of landand afterwards reaps it. It is true thatneither tlie fisherman nor the chemist hasany need, as a rule, to sow where he reapsthough, in the case of deep-sea fishers, aclose-season comparable to leaving a landfallow must be observ^ed ; in the case offresh-water fishers a crop of trout, forinstance, has to be " sown," and in thecase of the chemist precipitants of nitrogenmust be provided. But the underlyingidentity of all three elements is to be seen inthe fact that from all three, by the use oftools, a labourer who understands both the


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LANDLAND VALUES 71element (land, water, or air) and the toolsfor utilising it, can produce articles of use tomancorn, fish, or nitrogen. All threeelements are Land in the economic use ofthe word.

Land Values.A valuation is an esti-mate of the selling-price of any commodity.Land differs in no respect as a commodityfrom other commodities ; and land valuesare, therefore, only land valuations or esti-mates of the selling-price of land. It iscontended by the advocates of the Single-taxa tax, namely, upon land valuationsthata unique distinction belongs to land, in that,in the case of land its estimated selling-priceor"valuation" increases without any exertionon the part of its owner and by the action ofsociety alone. And this " increment " ofvaluation or estimated selling- price, beingdue, they say, to society, is properly subjectto a social tax equal in amount to the in-crement itself There is no such distinction,however, to be made. All commodities


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72 AN ALPHABET OF ECONOMICSare liable to fluctuations in selling-price dueto causes over which their owners haveno direct control. To-day a picture byVelasquez may be " worth " in the market athousand pounds ; to-morrow it may beworth ten thousand pounds. Its " value,"of course, remains the same ; but its valua-tion or estimated selling-price may be sud-denly increased by unearned increment.JNIoreover, until a commodity has actuallybeen sold its valuation is speculative. Totax land, therefore, on its annual valuationor estimate of its selling-price is to tax aspeculation.

Law or Supply and Demand.Or, asit may be abbreviated, L.S.D. We haveseen that the essential feature of commercialeconomics is a market, and that a marketexists wherever a buyer and a seller cometogether. The Law of Supply and

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A. R. Orage, "Alfabetul economic" (An Alphabet of Economics")

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