Confessions of an Economic Heretic/Chapter 2
CHAPTER II
AN EARLY HERESY
In my early approaches towards economic study it had struck me as odd that the private ownership of land and the receipt of its rent seemed a matter of no importance to our political economists. Failing to recognize that rent played any part as a cost of production, they simply accepted it as belonging to the order of nature, beneficial no doubt to its recipients, but not injurious to anybody else. Not until Henry George stirred the issue up to boiling-point in his Progress and Poverty did the inequity of private ownership of the earth get much attention, and even then it suffered the damage that comes from exaggeration and panaceic simplicity. For the contention that the whole gains of the Industrial Revolution were absorbed by private landowners was far less plausible in England than in America. The career of this doctrine is, indeed, an interesting testimony to the naïveté of the British mind. It never was accepted as a working-class creed. Its followers here were mostly middle-class townsmen affected by personal knowledge of local cases of land-increments. Little knots of such men, to whom the single-tax or other device for confiscation of land-values is the all-sufficient gospel of social reform, linger on into the present day. One aspect of this tenacity must not, however, be ignored. By concentrating upon a single form of unearned wealth it enables its adherents to evade and arrest the wider claims of Socialism. “A single-taxer” is free to take every economic advantage he may enjoy as capitalist, employer, investor, in dealing with weaker bargainers. While the landowner’s income is wholly unearned, his own business gains are the product of his skill, industry, foresight!
I was never a convinced single-taxer, for the early eighties ushered in more momentous issues in the exposure of poverty, by Charles Booth and his collaborators, and by the more sensational revelations of the other Booth’s In Darkest England. The growing sense of poverty with its physical and moral evils as a social disease, and not as an individual fault or misfortune, may be traced to these investigators. But they did not stand alone. They belonged to a wide-spread breakdown of what is termed the mid-Victorian complacency, and evoked other protests of a wider and more active character. Modern English Socialism dated from this period as an organized conscious movement, The Fabian Society with its intellectuals, the Social Democratic Society of Hyndman and its breakaway group under William Morris, expressed a varied protest, rationalistic, ethical, political, aesthetic against the sort of civilization that was emerging under mechanized capitalism. There was also a small but active group of Christian Socialists, persisting in the belief that it might be possible to square the plain teaching of Christ with the practical teaching and conduct of British Christianity in its mundane aspect. But though I felt a certain sympathy with all those movements, attended their gatherings, and became acquainted with some of their leaders, I joined none of them. For, with the exception of the Fabians, they appeared to me either too inflammatory or too sentimental. Even the Fabians did not, in my judgment, assail capitalism in its weakest points, and though the Fabian Essays[1] were a notable contribution to the economic education of the open-minded few, they had not the spirit of a popular appeal. The time for an effective general challenge of Capitalism was not yet ripe. Revelations of poverty, together with the extension of trade unionism to the unskilled workers (dramatized in the Dock Strike of 1889), were the direct stimuli of the “social reforms” of the nineties, and brought into being the Labour Party, which was soon to assume the name, if not the substance, of Socialism. But though my opinions and my feelings were beginning to move in the direction of Socialism, I was not a Socialist, Marxian, Fabian, or Christian.
Long before my mind was free to work upon the fundamental issues of economic science, I was caught in the network of a narrower economic heresy which played a distinctive part in all my later thinking. It came from what may be called an accidental contact. While teaching at a school in Exeter I came into personal relations with a business man named Mummery, known then and afterwards as a great mountaineer who had discovered another way up the Matterhorn and who in 1895 was killed in an attempt to climb the famous Himalayan mountain Nanga Parbat. My intercourse with him, I need hardly say, did not lie on this physical plane. But he was a mental climber as well, with a natural zest for a path of his own finding and a sublime disregard of intellectual authority. This man entangled me in a controversy about excessive saving, which he regarded as responsible for the underemployment of capital and labour in periods of bad trade. For a long time I sought to counter his arguments by the use of the orthodox economic weapons. But at length he convinced me and I went in with him to elaborate the over-saving argument in a book entitled The Physiology of Industry, which was published in 1889. This was the first open step in my heretical career, and I did not in the least realize its momentous consequences. For just at that time I had given up my scholastic post and was opening a new line of work as University Extension Lecturer in Economics and Literature. The first shock came in a refusal of the London Extension Board to allow me to offer courses of political economy. This was due, I learned, to the intervention of an economic Professor who had read my book and considered it as equivalent in rationality to an attempt to prove the flatness of the earth. How could there be any limit to the amount of useful saving when every item of saving went to increase the capital structure and the fund for paying wages? Sound economists could not fail to view with horror an argument which sought to check the source of all industrial progress. Another interesting personal experience helped to bring home to me the sense of my iniquity. Though prevented from lecturing on economics in London, I had been allowed by the greater liberality of the Oxford University Extension Movement to address audiences in the provinces, confining myself to practical issues relating to working-class life. Now it happened at this time that the Charity Organisation Society was planning a lecture campaign upon economic. subjects and invited me to prepare a course. For I had already been associated with the London Ethical Society, several active members of which were also workers for the C.O.S. I had expressed my willingness to undertake this new lecture work, when suddenly, without explanation, the invitation was withdrawn. Even then I hardly realized that in appearing to question the virtue of unlimited thrift I had committed the unpardonable sin.
I may here interpose the statement that my heresy was far from being as original a sin as I had supposed. For, as Mr. J. M. Robertson has shown in his book The Fallacy of Saving, the heresy had a fairly long record in the annals of English economic thinking, including in its adherents such reputable names as Shaftesbury, Berkeley, and Malthus. Nevertheless, it remained an offence against the new science built up in the nineteenth century for the explanation, the defence, and the glorification of the era of capitalism which had transformed the modes of manufacture, commerce, and communications and appeared to justify itself by an illimitable increase of wealth — for those who were in charge of the new processes. For these processes of capitalistic production were dependent upon a constantly increasing provision of new capital and, therefore, upon the willingness of an increasing number of persons to save and invest income which they might have spent in raising their standard of comfort and luxury.
So it came about that the heresy of over-saving committed a deadly offence. It contravened the one claim which political economy had to ethical respectability. For the “economic man,” though consciously moved by intelligent self-interest in the pursuit of personal gain, was led “as by an invisible hand” to a line of conduct conducive to the welfare of the community. He could, therefore, figure as a benevolent or kindly being. For it was his function to keep down the costs of production, including wages, to the lowest level, in order that the product of industry should be as large as possible.
It was difficult for students of this economic theory to gloss over its essential selfishness by adducing passages from the writings of economists which show gleams of liberality and humanity. The cold truth. remained that the laisser-faire theory of competitive capitalism which exists eve to-day in the seats of economic authority rested upon a foundation of intelligent selfishness. Nor was this selfishness redeemed by other personal qualities of economic efficiency, such as honesty within the limits of the law, industry, initiative, constructive and administrative ability. All these qualities are admirable in themselves and helpful towards personal success. But they do not carry the badge of ethical goodness. Now the personal self-sacrifice of thrift and saving, the postponement of present satisfaction to the needs of the future and the furtherance of larger human requirements — here was a definitely moral quality. Though the Charity Organisation Society approached the subject from a somewhat different angle, stressing less the public utility of thrift and more the personal element in character, it is easy to see how both the economist and the charity organizer felt and thought that any teaching which seemed to reflect on the utility or the virtue of personal thrift must be discouraged.
I found, and still find, it idle to protest that my argument against over-saving was not directed against individual thrift, that it left it open to any thrifty individual to spend as little as he chose of his income and to save as.much. Any individual may starve himself and his family and put aside three-quarters of his income against future contingencies which may never arise, if he is fool enough to do so. Nay, a whole group, even a nation, may commit this folly if they choose. Soviet Russia went a considerable way along this foolish path when they strove to put their country-workers on or below starvation rations in order to expedite the creation of industrial capital, an impolicy which they have now had sense enough to correct. But the fallacy of unlimited saving in this country was left undetected for the greater part of a century, for this reason. If Britain had been an isolated economic community (as now too late we are seeking to become) we should have been brought up against the limit of effective saving long ago. But so long as we were the only advanced industrial country with a large exportable surplus, there was no limit to our profitable saving. Any nation, like any individual, may save all it chooses, provided other nations are not able or willing to follow the same policy. It was only when Germany, America, France, and Japan began to encroach upon our practical monopoly of the world market for the export of staple manufactures and for the capital development of backward countries, that the fallacy of unlimited saving became apparent. It is at root a very simple fallacy, viz. the contention that what anyone can do, all can do. The doctrine of human equality used to be driven home in American schools by reminding a class that any boy might become President of the United States. But no credence would have attached to the statement that all the boys might win the Presidential post.
This country had grown so accustomed to the position of chief exporter and developer of backward lands that it is still difficult both for our capitalists and their economists to realize the momentous change that has taken place when a dozen other countries can compete with us on equal, sometimes superior, terms. The lesson, however, is everywhere being driven home for those who have thrown off the thraldom of the old political economy, and are able to put together the two salient economic facts of our time, the unprecedented unemployment and the movement of every country towards economic isolationism and protection of home markets.
This is not, however, clearly discernible in my first solid piece of economic writing in the early nineties, my Evolution of Modern Capitalism,[2] an objective presentation of the industrial changes comprised under the Industrial Revolution in its British shape. Though | had read the English translation of Marx’s first volume of Das Kapital some years before, I made no attempt to assess the value of his revolutionary attack. I was deterred, in part, by what still seems to me his false endeavour to express all costs of production in terms of units of labour-time, a common measure which could never operate in actual industry; in part, by a Hegelian dialectic which used an empty intellectual paradox to impart an air of mysticism into quite intelligible historic processes. My “Capitalism” ignored all theory that “did not present itself in the actual processes which I studied. The chief significance lay in its claim to be a scientific study, as contained in the Contemporary Science Series. My part in its production was almost a matter of chance. It was put upon me by my friend, William Clarke, one of the Fabian Essayists, who, after undertaking to write it, found that the labours of his journalistic career precluded fulfilment of his undertaking. Having more time at my disposal, and finding that the study was definitely useful for my lecture work, I took it in hand. The main part of the book was given to an account of the rôle played by modern machinery and power in enlarging the productivity of industry, increasing the importance of the employer, the organizer, and the owner of capital, in the economy of labour and the control of markets. The nature of most work, the conditions under which it was done, and the payment for it, were determined by the employer in all mechanized industries, and a new proletariat came into existence, divorced alike from all personal control of other factors of production than labour, and devoted to the performance of some single narrow action contributing to a complex co-operative process of production which had no human concern for the great mass of wage-earners. Although the story of these economic changes necessarily involved some account of the quantitative relations between the volume of production and of consumption in the social industries and in the economic system as a whole (thus compelling a restatement of my “heresy” of over-saving), I did not yet fully explore the saving and the spending processes so as to make over-saving a necessary implication of capitalism.
Though there was nothing novel in my survey of capitalism, it became an educational textbook in some colleges here and in America, and helped in some measure to cover up the discredit of my earlier work and almost to win for me a place of academic respectability. Yet, as I look back upon it, I find that it contains in germ nearly all the departures from economic orthodoxy which my subsequent writings disclosed.