Confessions of an Economic Heretic/Chapter 3
CHAPTER III
HUMANISM AND RATIONALISM
The two main lines of this departure lie in the development of a “humanist” interpretation of the processes of production and consumption, and in the revolt against the accepted theory of laisser-faire as a security for the welfare of the community regarded as a productive and consumptive whole.
The need for the humanization of economic science and art was intensified by the study which I gave to Ruskin in the mid-nineties. Here again the initiative was not mine but came from Sir Charles Mallet, who asked me to write the book which I published in 1898 under the title John Ruskin: Social Reformer. I had read and admired Unto this Last[1] some years before, but had regarded it rather as a passionate rebellion than as a critical and constructive work. The violence of its assault upon modern processes and the demand for “captains of industry” to dominate economic life repelled me. But when I took it up again and read it in conjunction with Munera Pulveris,[2] which sets forth in logical order Ruskin’s claim to be a scientific thinker, I recognized that his insistence upon interpreting the terms “wealth” and “value” in their proper meanings “welfare” and “vitality” was not the mere freak of a literary verbalist but a genuinely scientific demand. “There is no wealth but life. Life including all its powers of love, of joy, and of admiration. That country is the richest which nourishes the greatest number of noble and happy human beings; that man is richest who, having perfected the functions of his own life to the utmost, has also the widest influence, both personal and by means of his possessions, over the lives of others.”[3] Here, as elsewhere, the rich and impassioned eloquence of Ruskin was, and still is, an obstacle to his acceptance as a scientific teacher in a country where every form of eloquence is still apt to be regarded with suspicion as an attempt to cloud our reason. But Ruskin’s main charge against the current political economy was that it had deliberately and systematically degraded the true and formerly accepted meaning of such terms as “wealth,” “value,” and “profit” by putting them to the narrow service of business mentality.
Though Ruskin often protested that his indictment was “scientific,” it can hardly be questioned that it derived its force and validity from his appreciation of life as the finest of the fine arts. This required him to introduce the ethical standard of an “ought” into the valuation of every economic process or result. I expressed this important need in the following passage of my book. “The true ‘value’ of a thing is neither the price paid for it, nor the amount of present satisfaction it yields to the consumer, but the intrinsic service it is capable of yielding by its right use. Of commercial goods, or any other class of goods, those which have a capacity for satisfying wholesome human wants are ‘wealth,’ those which pander to some base or injurious desire of man are not wealth, but ‘illth,’ availing as they do, not for life but for death. Thus he (Ruskin) posits as the starting-point of Political Economy a standard of life not based upon present subjective valuations of ‘consumers,’ but upon eternal and immutable principles of health and disease, justice and injustice.”[4]
In Unto this Last it sometimes appears that Ruskin refused to recognize that political economy was capable of being made a study distinct from the wider study of the art of life which would include all sorts of human activities that yield vital value. But in Munera Pulveris he virtually confines his analysis to the production and consumption of economic “goods” which come within the compass of “cost” and “utility.” His central thought is the development of “value” in the sense of that which “avails” towards life. And here he distinguishes what he terms “intrinsic” from “effectual” value. “Intrinsic” value is the absolute power to support life. A sheaf of wheat of given quality and weight has in it a measurable power of sustaining the substance of the body; a cubic foot of pure air, a fixed power of sustaining its warmth; and a cluster of flowers of given beauty a fixed power of enlivening or animating the senses and heart.” But whether any particular object will yield such a service depends upon the state of the recipient, “his capacity to use it.” Wealth has no effectual value if there is no capacity to use it in the recipient. Its effectual value increases with the capacity of the user. The finest picture in the world has no effectual value if there is nobody available to appreciate its beauty. Even “a sheaf of wheat” may be devoid of “effectual” value if its owner has a surfeit, and it cannot pass to another who is in need of food. Curiously enough this view of wealth and value is here confined to the human utility of articles of wealth and takes no direct account of their human cost. This is the stranger inasmuch as Ruskin’s earliest and strongest charge against the economic system was that, by dividing and mechanizing labour, it took away all interest in and joy of work. He was artist before he became economist, and it was the vital cost of excessive and degraded work that drew him into his passionate campaign. But though in Munera Pulveris he appears to concentrate upon utility in its sense of humanly serviceable consumption as his central theme, his wider economic thesis lies in the correlation of human cost to human utility. A subdivided routine-producer could not be an efficient consumer of any of the more worthy sorts of wealth. Nor could an idle consumer, living not by his labour but on his “means.”
Though Ruskin in no single book set out his economic “science” in its full strength, a reading of his several writings yields a sufficient basis for a human political economy, which should take account of the related processes of production and consumption and should evaluate both processes in terms of human worth.
From him I drew the basic thought for my subsequent economic writings, viz. the necessity of going behind the current monetary estimates of wealth, cost, and utility, to reach the body of human benefits and satisfactions which gave them a real meaning. But it is one thing to judge that all costs of production and utilization of consumption should be expressed in terms of human satisfaction and quite another thing to formulate such a judgment. Several sorts of difficulty at once become apparent. In this “human” economics it is almost impossible to differentiate the satisfaction and dissatisfaction one calls “economic” from other vital goods and ills which lie outside this economic ambit. That is to say, there is the tendency to fuse economic with other vital processes so as to disable them for separate study. Next there is the question how far one can take as criteria of human value the actual satisfactions and dissatisfactions currently attributed to various acts of production and consumption or should insist upon reference to what Ruskin termed their “‘intrinsic’ values.” Lastly, there remains the question how far the pleasures and pains of one man can be compared with those of another.
I cite these difficulties here, not with a view of presenting ready solutions, but because they affect the substance of nearly all my later thought and writing. I did not even grasp them in their full significance at the time, and they proved to be sources of some confusion when I came to formulate my economics in terms of “human value.” In the nineties my mind was fumbling after the conception and expression of an economics which was more art than science, and, therefore, more qualitative than quantitative in its estimate of value, wealth, cost, and utility. But the full significance of this revolt against a distinctively quantitative science did not emerge until a good deal later.
For while I was engaged in the Ruskinian service, I also occupied myself in the more definitely economic task of an analysis of the different sorts and conditions of bargain and marketing by which the distribution or apportionment of wealth among the owners of the several factors of production took place. This was the beginning of my various endeavours to express intelligibly my growing realization of the injustice, inhumanity, and waste in those processes of price-fixing which determined the respective payments made to landowners, capitalists, employers, and the various classes of workers. What first prompted me to this endeavour was my sense of the unsatisfactory way in which economists found separate “laws” to express rent, interest, profit, wages. In actual economic processes all the factors of production were required to co-operate, and that co-operation was an organic process which precluded the separate assignment of any part of the products to any one of them. Different kinds and quantities of land, capital, labour were needed for each of these acts of co-operative production. The calculation of how much of each factor was required in a given business was based on the conception of a factory, a workshop, or a retail store regarded as an organic whole.
In considering the parts played by the several sorts of land, capital, and labour, it seemed, however, necessary to attribute to them for their several units a measurable amount of productive utility for the various uses to which they might be put. Here I found that little had been done towards such measurement except in the case of land, and that even there the tendency had been to treat all land as if it were the: same sort of stuff differing only in the degree of fertility for a single purpose. There was “marginal” land, just worth cultivation on a no-rent or nominal rent basis, and better acres paid a “differential” rent, measuring the superiority of their yield over that of the marginal land. The dictum, that “rent” did not “enter into” cost of production and price, was based on this quite unwarranted assumption of a no-rent margin. For as soon as it was realized that there were several alternative uses for a piece of land, it became evident that only the lowest of these uses yielded no rent at the margin. The worst hop-land paid a positive rent, the worst market-garden land, the worst building land, because the worst acre for any of these purposes was not “marginal” for wheat growing, pasture, or some other alternative use from which it was diverted.
This reflection made it obvious that “land” did not differ from capital and labour as regards price and productivity. There existed in any productive community capital, in the sense of plant, raw materials, etc., which was inferior to other capital, and was only just worth using at any particular time if its service could be purchased at a nominal price, just covering cost of maintenance or of replacement. So likewise with the labour available at any given time for some particular purpose: it varied in quality or efficiency and the least efficient worker only got a bare subsistence wage. The more efficient plant and labour got payments corresponding to their superiority over the “marginal” plant and labour. My mind, working along this comparison, sought to grade all the factors of production according to their degrees of efficiency, and to apply to industry in general the law of differential rents and of margins. Payments out of the price of the ultimate products thus emerged under several: heads, applicable to each of the factors: first, costs of maintenance or replacement, applicable to land as to capital and labour; secondly, marginal or minimum payments to the owners of the least efficient of the several factors in employment; finally, differential payments due to the owners of super-marginal factors.
This analysis conducted so far appears to assume the necessity and even the equity of the current economic system (save for the element of land rents). The owners of capital and labour who take super-marginal payments may be held to get them in virtue of the higher personal effort and efficiency in putting their “‘savings,’’ brains, and labour-power to the best uses. Thus we get a justification of the competitive laisser-faire economy.
But further reflection showed me that two false assumptions underlay this view, one that all units of production were infinitely divisible in quantity, and, secondly, that they enjoyed equal opportunities for entering any market for their employment.
The failure to fulfil those two conditions is, however, manifest. Units of capital and of labour are not infinitely divisible. In any given manufacturing business the minimum unit of real capital may be the whole plant of a mill, or, at any rate, one expensive machine: the unit of labour is for most purposes the week’s employment of a worker’s time. Nor can new savings flow freely into all sorts of investment, distributing themselves accurately in accordance with their most productive use. Most remunerative uses are safeguarded for capitalists in control, or are only open to certain orders of investors. Human labour cannot, it is notorious, have full knowledge of and free access to all sorts of work, from the work of research and invention, or of business control, to the various grades of mental and manual skilled and unskilled labour.
It was the nature of this unfreedom and inequality in the competitive conditions which led me in the later nineties into my early challenge of the equity of the distribution of incomes. I then set myself to examine the actual operations of the owners of supply and demand, as expressed in the bargaining that determined those market prices which are the main instruments for the distribution of incomes. From this examination there emerged two salient truths: first, that in many markets the volume of supply was restricted, naturally or artificially, so as to give to the sellers, as a body, a superior bargaining force for the sale of their goods, reflected in a higher price than was economically necessary to evoke their productive services. Secondly, the selling prices, even where “free bargaining” prevailed, were determined in accord with the relative importance to certain buyers or sellers of effecting a purchase or sale: these marginal buyers or sellers fixed the price at a point where it was just worth their while to buy or sell, the other buyers or sellers got from this price something more than would have been a sufficient inducement, i.e. a “surplus” element. This “surplus,” corresponding to re rent for land, had no rational or equitable basis: it was an element of “unreason” permeating the bargaining process in all markets, either for consumption goods, production goods, or productive services.
The crude and commonly accepted notion that the general result of the current competitive system was to place the benefits of competition in the hands of “the consumer,” and that, since everybody is a consumer, all improvements of productivity ultimately benefited consumers as a body, was thus put into the scrap-heap, and there began to emerge the view that economic “force” was a main determinant in the distribution of wealth. This argument in its entirety was set out in my book The Economics of Distribution, published in 1900 by The Macmillan Company of New York. This publication was unfortunate, in so much as it reached few English readers and was scarcely noticed in English reviews.
There was little attempt at the time to associate the definitely humanist and ethical trend of my Ruskinian thought with this analysis of the economic processes of distribution. It was not until a later period that the two trends of thought were correlated. This postponement was partly due to the absorption of much of my time and energy in movements and events which brought me into touch with the more active reformers of the nineties.