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ECONOMIC LIBERALISM-

There are two forms of Socialism with which Liberalism has nothing to do. These I will call the mechanical and the official. Mechanical Socialism is founded on a false interpretation of history. It attributes the phenomena of social life and development to the sole operation of the economic factor, whereas the beginning of sound sociology is to conceive society as a whole in which all the parts interact. The economic factor, to take a single point, is at least as much the effect as it is the cause of scientific invention. There would be no world-wide system of telegraphy if there was no need of world-wide intercommunication. But there would be no electric telegraph at all but for the scientific interest which determined the experiments of Gauss and Weber. Mechanical Socialism, further, is founded on a false economic analysis which attributes all value to[Pg 168] labour, denying, confounding or distorting the distinct functions of the direction of enterprise, the unavoidable payment for the use of capital, the productivity of nature, and the very complex social forces which, by determining the movements of demand and supply actually fix the rates at which goods exchange with one another. Politically, mechanical Socialism supposes a class war, resting on a clear-cut distinction of classes which does not exist. Far from tending to clear and simple lines of cleavage, modern society exhibits a more and more complex interweaving of interests, and it is impossible for a modern revolutionist to assail “property” in the interest of “labour” without finding that half the “labour” to which he appeals has a direct or indirect interest in “property.” As to the future, mechanical Socialism conceives a logically developed system of the control of industry by government. Of this all that need be said is that the construction of Utopias is not a sound method of social science; that this particular Utopia makes insufficient provision for liberty, movement, and growth; and that in order to bring his ideals into the region of practical[Pg 169] discussion, what the Socialist needs is to formulate not a system to be substituted as a whole for our present arrangements but a principle to guide statesmanship in the practical work of reforming what is amiss and developing what is good in the actual fabric of industry. A principle so applied grows if it has seeds of good in it, and so in particular the collective control of industry will be extended in proportion as it is found in practice to yield good results. The fancied clearness of Utopian vision is illusory, because its objects are artificial ideas and not living facts. The “system” of the world of books must be reconstructed as a principle that can be applied to the railway, the mine, the workshop, and the office that we know, before it can even be sensibly discussed. The evolution of Socialism as a practical force in politics has, in point of fact, proceeded by such a reconstruction, and this change carries with it the end of the materialistic Utopia.

Official Socialism is a creed of different brand. Beginning with a contempt for ideals of liberty based on a confusion between liberty and competition, it proceeds to a measure of contempt for average humanity in general.[Pg 170] It conceives mankind as in the mass a helpless and feeble race, which it is its duty to treat kindly. True kindness, of course, must be combined with firmness, and the life of the average man must be organized for his own good. He need not know that he is being organized. The socialistic organization will work in the background, and there will be wheels within wheels, or rather wires pulling wires. Ostensibly there will be a class of the elect, an aristocracy of character and intellect which will fill the civil services and do the practical work of administration. Behind these will be committees of union and progress who will direct operations, and behind the committees again one or more master minds from whom will emanate the ideas that are to direct the world. The play of democratic government will go on for a time, but the idea of a common will that should actually undertake the organization of social life is held the most childish of illusions. The master minds can for the moment work more easily through democratic forms, because they are here, and to destroy them would cause an upheaval. But the essence of government lies in the method of capture. The[Pg 171] ostensible leaders of democracy are ignorant creatures who can with a little management be set to walk in the way in which they should go, and whom the crowd will follow like sheep. The art of governing consists in making men do what you wish without knowing what they are doing, to lead them on without showing them whither until it is too late for them to retrace their steps. Socialism so conceived has in essentials nothing to do with democracy or with liberty. It is a scheme of the organization of life by the superior person, who will decide for each man how he should work, how he should live, and indeed, with the aid of the Eugenist, whether he should live at all or whether he has any business to be born. At any rate, if he ought not to have been born—if, that is, he comes of a stock whose qualities are not approved—the Samurai will take care that he does not perpetuate his race.

Now the average Liberal might have more sympathy with this view of life if he did not feel that for his part he is just a very ordinary man. He is quite sure that he cannot manage the lives of other people for them. He finds it enough to manage his own.[Pg 172] But with the leave of the Superior he would rather do this in his own way than in the way of another, whose way may be much wiser but is not his. He would rather marry the woman of his own choice, than the one who would be sure to bring forth children of the standard type. He does not want to be standardized. He does not conceive himself as essentially an item in a census return. He does not want the standard clothes or the standard food, he wants the clothes which he finds comfortable and the food which he likes. With this unregenerate Adam in him, I fear that the Liberalism that is also within him is quite ready to make terms. Indeed, it incites him to go still further. It bids him consider that other men are, on the whole, very like himself and look on life in much the same way, and when it speaks within him of social duty it encourages him to aim not at a position of superiority which will enable him to govern his fellow creatures for their own good, but at a spirit of comradeship in which he will stand shoulder to shoulder with them on behalf of common aims.

If, then, there be such a thing as a Liberal Socialism—and whether there be is still a[Pg 173] subject for inquiry—it must clearly fulfil two conditions. In the first place, it must be democratic. It must come from below, not from above. Or rather, it must emerge from the efforts of society as a whole to secure a fuller measure of justice, and a better organization of mutual aid. It must engage the efforts and respond to the genuine desires not of a handful of superior beings, but of great masses of men. And, secondly, and for that very reason, it must make its account with the human individual. It must give the average man free play in the personal life for which he really cares. It must be founded on liberty, and must make not for the suppression but for the development of personality. How far, it may be asked, are these objects compatible? How far is it possible to organize industry in the interest of the common welfare without either overriding the freedom of individual choice or drying up the springs of initiative and energy? How far is it possible to abolish poverty, or to institute economic equality without arresting industrial progress? We cannot put the question without raising more fundamental issues. What is the real meaning of “equality” in economics? Would it mean,[Pg 174] for example, that all should enjoy equal rewards, or that equal efforts should enjoy equal rewards, or that equal attainments should enjoy equal rewards? What is the province of justice in economics? Where does justice end and charity begin? And what, behind all this, is the basis of property? What is its social function and value? What is the measure of consideration due to vested interest and prescriptive right? It is impossible, within the limits of a volume, to deal exhaustively with such fundamental questions. The best course will be to follow out the lines of development which appear to proceed from those principles of Liberalism which have been already indicated and to see how far they lead to a solution.

We saw that it was the duty of the State to secure the conditions of self-maintenance for the normal healthy citizen. There are two lines along which the fulfilment of this duty may be sought. One would consist in providing access to the means of production, the other in guaranteeing to the individual a certain share in the common stock. In point of fact, both lines have been followed by Liberal legislation. On the one side this[Pg 175] legislation has set itself, however timidly and ineffectively as yet, to reversing the process which divorced the English peasantry from the soil. Contemporary research is making it clear that this divorce was not the inevitable result of slowly operating economic forces. It was brought about by the deliberate policy of the enclosure of the common fields begun in the fifteenth century, partially arrested from the middle of the sixteenth to the eighteenth, and completed between the reigns of George II and Queen Victoria. As this process was furthered by an aristocracy, so there is every reason to hope that it can be successfully reversed by a democracy, and that it will be possible to reconstitute a class of independent peasantry as the backbone of the working population. The experiment, however, involves one form or another of communal ownership. The labourer can only obtain the land with the financial help of the State, and it is certainly not the view of Liberals that the State, having once regained the fee simple, should part with it again. On the contrary, in an equitable division of the fruits of agriculture all advantages that are derived from the qualities or position of the[Pg 176] soil itself, or from the enhancement of prices by tariffs would, since they are the product of no man’s labour, fall to no man’s share, or, what is the same thing, they should fall to every man, that is, to the community. This is why Liberal legislation seeks to create a class not of small landlords but of small tenants. It would give to this class access to the land and would reward them with the fruits of their own work—and no more. The surplus it would take to itself in the form of rent, and while it is desirable to give the State tenant full security against disturbance, rents must at stated periods be adjustable to prices and to cost. So, while Conservative policy is to establish a peasant proprietary which would reinforce the voting strength of property, the Liberal policy is to establish a State tenantry from whose prosperity the whole community would profit. The one solution is individualist. The other, as far as it goes, is nearer to the Socialist ideal.

But, though British agriculture may have a great future before it, it will never regain its dominant position in our economic life, nor are small holdings ever likely to be the prevalent form of agriculture. The bulk of [Pg 177]industry is, and probably will be, more and more in the hands of large undertakings with which the individual workman could not compete whatever instruments of production were placed in his hands. For the mass of the people, therefore, to be assured of the means of a decent livelihood must mean to be assured of continuous employment at a living wage, or, as an alternative, of public assistance. Now, as has been remarked, experience goes to show that the wage of the average worker, as fixed by competition, is not and is not likely to become sufficient to cover all the fortunes and misfortunes of life, to provide for sickness, accident, unemployment and old age, in addition to the regular needs of an average family. In the case of accident the State has put the burden of making provision on the employer. In the case of old age it has, acting, as I think, upon a sounder principle, taken the burden upon itself. It is very important to realize precisely what the new departure involved in the Old Age Pensions Act amounted to in point of principle. The Poor Law already guaranteed the aged person and the poor in general against actual starvation. But the Poor Law came into[Pg 178] operation only at the point of sheer destitution. It failed to help those who had helped themselves. Indeed, to many it held out little inducement to help themselves if they could not hope to lay by so much as would enable them to live more comfortably on their means than they would live in the workhouse. The pension system throws over the test of destitution. It provides a certain minimum, a basis to go upon, a foundation upon which independent thrift may hope to build up a sufficiency. It is not a narcotic but a stimulus to self help and to friendly aid or filial support, and it is, up to a limit, available for all alike. It is precisely one of the conditions of independence of which voluntary effort can make use, but requiring voluntary effort to make it fully available.

The suggestion underlying the movement for the break up of the Poor Law is just the general application of this principle. It is that, instead of redeeming the destitute, we should seek to render generally available the means of avoiding destitution, though in doing so we should uniformly call on the individual for a corresponding effort on his part. One method of meeting these conditions is to[Pg 179] supply a basis for private effort to work upon, as is done in the case of the aged. Another method is that of State-aided insurance, and on these lines Liberal legislators have been experimenting in the hope of dealing with sickness, invalidity, and one portion of the problem of unemployment. A third may be illustrated by the method by which the Minority of the Poor Law Commissioners would deal with the case, at present so often full of tragic import, of the widowed or deserted mother of young children. Hitherto she has been regarded as an object of charity. It has been a matter for the benevolent to help her to retain her home, while it has been regarded as her duty to keep “off the rates” at the cost of no matter what expenditure of labour away from home. The newer conception of rights and duties comes out clearly in the argument of the commissioners, that if we take in earnest all that we say of the duties and responsibilities of motherhood, we shall recognize that the mother of young children is doing better service to the community and one more worthy of pecuniary remuneration when she stays at home and minds her children than[Pg 180] when she goes out charing and leaves them to the chances of the street or to the perfunctory care of a neighbour. In proportion as we realize the force of this argument, we reverse our view as to the nature of public assistance in such a case. We no longer consider it desirable to drive the mother out to her charing work if we possibly can, nor do we consider her degraded by receiving public money. We cease, in fact, to regard the public money as a dole, we treat it as a payment for a civic service, and the condition that we are inclined to exact is precisely that she should not endeavour to add to it by earning wages, but rather that she should keep her home respectable and bring up her children in health and happiness.

In defence of the competitive system two arguments have been familiar from old days. One is based on the habits of the working classes. It is said that they spend their surplus incomes on drink, and that if they have no margin for saving, it is because they have sunk it in the public-house. That argument is rapidly being met by the actual change of habits. The wave of temperance which two generations ago reformed the habits of the [Pg 181]well-to-do in England is rapidly spreading through all classes in our own time. The drink bill is still excessive, the proportion of his weekly wages spent on drink by the average workman is still too great, but it is a diminishing quantity, and the fear which might have been legitimately expressed in old days that to add to wages was to add to the drink bill could no longer be felt as a valid objection to any improvement in the material condition of the working population in our own time. We no longer find the drink bill heavily increasing in years of commercial prosperity as of old. The second argument has experienced an even more decisive fate. Down to my own time it was forcibly contended that any improvement in the material condition of the mass of the people would result in an increase of the birth rate which, by extending the supply of labour, would bring down wages by an automatic process to the old level. There would be more people and they would all be as miserable as before. The actual decline of the birth rate, whatever its other consequences may be, has driven this argument from the field. The birth rate does not increase with prosperity, but diminishes. There is no fear[Pg 182] of over-population; if there is any present danger, it is upon the other side. The fate of these two arguments must be reckoned as a very important factor in the changes of opinion which we have noted.

Nevertheless, it may be thought that the system that I have outlined is no better than a vast organization of State charity, and that as such it must carry the consequences associated with charity on a large scale. It must dry up the sources of energy and undermine the independence of the individual. On the first point, I have already referred to certain cogent arguments for a contrary view. What the State is doing, what it would be doing if the whole series of contemplated changes were carried through to the end, would by no means suffice to meet the needs of the normal man. He would still have to labour to earn his own living. But he would have a basis to go upon, a sub-structure on which it would be possible for him to rear the fabric of a real sufficiency. He would have greater security, a brighter outlook, a more confident hope of being able to keep his head above water. The experience of life suggests that hope is a better stimulus than[Pg 183] fear, confidence a better mental environment than insecurity. If desperation will sometimes spur men to exceptional exertion the effect is fleeting, and, for a permanence, a more stable condition is better suited to foster that blend of restraint and energy which makes up the tissue of a life of normal health. There would be those who would abuse their advantages as there are those who abuse every form of social institution. But upon the whole it is thought that individual responsibility can be more clearly fixed and more rigorously insisted on when its legitimate sphere is properly defined, that is to say, when the burden on the shoulders of the individual is not too great for average human nature to bear.

But, it may be urged, any reliance on external assistance is destructive of independence. It is true that to look for support to private philanthropy has this effect, because it makes one man dependent on the good graces of another. But it is submitted that a form of support on which a man can count as a matter of legal right has not necessarily the same effect. Charity, again, tends to diminish the value of independent effort because it flows in[Pg 184] the direction of the failures. It is a compensation for misfortune which easily slides into an encouragement to carelessness. What is matter of right, on the other hand, is enjoyed equally by the successful and the unsuccessful. It is not a handicap in favour of the one, but an equal distance deducted from the race to be run against fate by both. This brings us to the real question. Are measures of the kind under discussion to be regarded as measures of philanthropy or measures of justice, as the expression of collective benevolence or as the recognition of a general right? The full discussion of the question involves complex and in some respects novel conceptions of economics and of social ethics to which I can hardly do justice within the limits of this chapter. But I will endeavour to indicate in outline the conception of social and economic justice which underlies the movement of modern Liberal opinion.

We may approach the subject by observing that, whatever the legal theory, in practice the existing English Poor Law recognizes the right of every person to the bare necessaries of life. The destitute man or woman can come to a public authority, and the public authority[Pg 185] is bound to give him food and shelter. He has to that extent a lien on the public resources in virtue of his needs as a human being and on no other ground. This lien, however, only operates when he is destitute; and he can only exercise it by submitting to such conditions as the authorities impose, which when the workhouse test is enforced means loss of liberty. It was the leading “principle of 1834” that the lot of the pauper should be made “less eligible” than that of the independent labourer. Perhaps we may express the change of opinion which has come about in our day by saying that according to the newer principle the duty of society is rather to ensure that the lot of the independent labourer be more eligible than that of the pauper. With this object the lien on the common wealth is enlarged and reconstituted. Its exercise does not entail the penal consequence of the loss of freedom unless there is proved misfeasance or neglect on the part of the individual. The underlying contention is that, in a State so wealthy as the United Kingdom, every citizen should have full means of earning by socially useful labour so much material support as experience proves to be[Pg 186] the necessary basis of a healthy, civilized existence. And if in the actual working of the industrial system the means are not in actual fact sufficiently available he is held to have a claim not as of charity but as of right on the national resources to make good the deficiency.

That there are rights of property we all admit. Is there not perhaps a general right to property? Is there not something radically wrong with an economic system under which through the laws of inheritance and bequest vast inequalities are perpetuated? Ought we to acquiesce in a condition in which the great majority are born to nothing except what they can earn, while some are born to more than the social value of any individual of whatever merit? May it not be that in a reasoned scheme of economic ethics we should have to allow a true right of property in the member of the community as such which would take the form of a certain minimum claim on the public resources? A pretty idea, it may be said, but ethics apart, what are the resources on which the less fortunate is to draw? The British State has little or no collective property available for any such purpose. Its revenues are based on taxation, and in the end what all[Pg 187] this means is that the rich are to be taxed for the benefit of the poor, which we may be told is neither justice nor charity but sheer spoliation. To this I would reply that the depletion of public resources is a symptom of profound economic disorganization. Wealth, I would contend, has a social as well as a personal basis. Some forms of wealth, such as ground rents in and about cities, are substantially the creation of society, and it is only through the misfeasance of government in times past that such wealth has been allowed to fall into private hands. Other great sources of wealth are found in financial and speculative operations, often of distinctly anti-social tendency and possible only through the defective organization of our economy. Other causes rest in the partial monopolies which our liquor laws, on the one side, and the old practice of allowing the supply of municipal services to fall into private hands have built up. Through the principle of inheritance, property so accumulated is handed on; and the result is that while there is a small class born to the inheritance of a share in the material benefits of civilization, there is a far larger class which can say “naked we enter, naked we leave.” This system, as a[Pg 188] whole, it is maintained, requires revision. Property in this condition of things ceases, it is urged, to be essentially an institution by which each man can secure to himself the fruits of his own labour, and becomes an instrument whereby the owner can command the labour of others on terms which he is in general able to dictate. This tendency is held to be undesirable, and to be capable of a remedy through a concerted series of fiscal, industrial, and social measures which would have the effect of augmenting the common stock at the disposal of society, and so applying it as to secure the economic independence of all who do not forfeit their advantages by idleness, incapacity, or crime. There are early forms of communal society in which each person is born to his appropriate status, carrying its appropriate share of the common land. In destroying the last relics of this system economic individualism has laid the basis of great material advances, but at great cost to the happiness of the masses. The ground problem in economics is not to destroy property, but to restore the social conception of property to its right place under conditions suitable to modern needs. This is[Pg 189] not to be done by crude measures of redistribution, such as those of which we hear in ancient history. It is to be done by distinguishing the social from the individual factors in wealth, by bringing the elements of social wealth into the public coffers, and by holding it at the disposal of society to administer to the prime needs of its members.

The basis of property is social, and that in two senses. On the one hand, it is the organized force of society that maintains the rights of owners by protecting them against thieves and depredators. In spite of all criticism many people still seem to speak of the rights of property as though they were conferred by Nature or by Providence upon certain fortunate individuals, and as though these individuals had an unlimited right to command the State, as their servant, to secure them by the free use of the machinery of law in the undisturbed enjoyment of their possessions. They forget that without the organized force of society their rights are not worth a week’s purchase. They do not ask themselves where they would be without the judge and the policeman and the settled order which society maintains. The prosperous business man who thinks that he[Pg 190] has made his fortune entirely by self help does not pause to consider what single step he could have taken on the road to his success but for the ordered tranquillity which has made commercial development possible, the security by road, and rail, and sea, the masses of skilled labour, and the sum of intelligence which civilization has placed at his disposal, the very demand for the goods which he produces which the general progress of the world has created, the inventions which he uses as a matter of course and which have been built up by the collective effort of generations of men of science and organizers of industry. If he dug to the foundations of his fortune he would recognize that, as it is society that maintains and guarantees his possessions, so also it is society which is an indispensable partner in its original creation.

This brings us to the second sense in which property is social. There is a social element in value and a social element in production. In modern industry there is very little that the individual can do by his unaided efforts. Labour is minutely divided; and in proportion as it is divided it is forced to be co-operative. Men produce goods to[Pg 191] sell, and the rate of exchange, that is, price, is fixed by relations of demand and supply the rates of which are determined by complex social forces. In the methods of production every man makes use, to the best of his ability, of the whole available means of civilization, of the machinery which the brains of other men have devised, of the human apparatus which is the gift of acquired civilization. Society thus provides conditions or opportunities of which one man will make much better use than another, and the use to which they are put is the individual or personal element in production which is the basis of the personal claim to reward. To maintain and stimulate this personal effort is a necessity of good economic organization, and without asking here whether any particular conception of Socialism would or would not meet this need we may lay down with confidence that no form of Socialism which should ignore it could possibly enjoy enduring success. On the other hand, an individualism which ignores the social factor in wealth will deplete the national resources, deprive the community of its just share in the fruits of industry and so result in a one-sided and inequitable distribution of[Pg 192] wealth. Economic justice is to render what is due not only to each individual but to each function, social or personal, that is engaged in the performance of useful service, and this due is measured by the amount necessary to stimulate and maintain the efficient exercise of that useful function. This equation between function and sustenance is the true meaning of economic equality.

Now to apply this principle to the adjustment of the claims of the community on the one hand and the producers or inheritors of wealth on the other would involve a discrimination of the factors of production which is not easy to make in all instances. If we take the case of urban land, referred to above, the distinction is tolerably clear. The value of a site in London is something due essentially to London, not to the landlord. More accurately a part of it is due to London, a part to the British empire, a part, perhaps we should say, to Western civilization. But while it would be impossible to disentangle these subsidiary factors, the main point that the entire increment of value is due to one social factor or another is sufficiently clear, and this explains why Liberal opinion has fastened on[Pg 193] the conception of site value as being by right communal and not personal property. The monopoly value of licensed premises, which is the direct creation of laws passed for the control of the liquor traffic, is another case in point. The difficulty which society finds in dealing with these cases is that it has allowed these sources of wealth to pass out of its hands, and that property of these kinds has freely passed from one man to another in the market, in the belief that it stood and would stand on the same basis in law as any other. Hence, it is not possible for society to insist on the whole of its claim. It could only resume its full rights at the cost of great hardship to individuals and a shock to the industrial system. What it can do is to shift taxation step by step from the wealth due to individual enterprise to the wealth that depends on its own collective progress, thus by degrees regaining the ownership of the fruits of its own collective work.

Much more difficult in principle is the question of the more general elements of social value which run through production as a whole. We are dealing here with factors so intricately interwoven in their operation that[Pg 194] they can only be separated by an indirect process. What this process would be we may best understand by imagining for a moment a thoroughgoing centralized organization of the industrial system endeavouring to carry out the principles of remuneration outlined above. The central authority which we imagine as endowed with such wisdom and justice as to find for every man his right place and to assign to every man his due reward would, if our argument is sound, find it necessary to assign to each producer, whether working with hand or brain, whether directing a department of industry or serving under direction, such remuneration as would stimulate him to put forth his best efforts and would maintain him in the condition necessary for the life-long exercise of his function. If we are right in considering that a great part of the wealth produced from year to year is of social origin, it would follow that, after the assignment of this remuneration, there would remain a surplus, and this would fall to the coffers of the community and be available for public purposes, for national defence, public works, education, charity, and the furtherance of civilized life.

[Pg 195]

Now, this is merely an imaginary picture, and I need not ask whether such a measure of wisdom on the part of a Government is practically attainable, or whether such a measure of centralization might not carry consequences which would hamper progress in other directions. The picture serves merely to illustrate the principles of equitable distribution by which the State should be guided in dealing with property. It serves to define our conception of economic justice, and therewith the lines on which we should be guided in the adjustment of taxation and the reorganization of industry. I may illustrate its bearing by taking a couple of cases.

One important source of private wealth under modern conditions is speculation. Is this also a source of social wealth? Does it produce anything for society? Does it perform a function for which our ideal administration would think it necessary to pay? I buy some railway stock at 110. A year or two later I seize a favourable opportunity and sell it at 125. Is the increment earned or unearned? The answer in the single case is clear, but it may be said that my good fortune in this case may be balanced by ill luck[Pg 196] in another. No doubt. But, to go no further, if on balance I make a fortune or an income by this method it would seem to be a fortune or an income not earned by productive service. To this it may be replied that the buyers and sellers of stocks are indirectly performing the function of adjusting demand and supply, and so regulating industry. So far as they are expert business men trained in the knowledge of a particular market this may be so. So far as they dabble in the market in the hope of profiting from a favourable turn, they appear rather as gamblers. I will not pretend to determine which of the two is the larger class. I would point out only that, on the face of the facts, the profits derived from this particular source appear to be rather of the nature of a tax which astute or fortunate individuals are able to levy on the producer than as the reward which they obtain for a definite contribution on their own part to production. There are two possible empirical tests of this view. One is that a form of collective organization should be devised which should diminish the importance of the speculative market. Our principle would suggest the propriety of an attempt in that direction[Pg 197] whenever opportunity offers. Another would be the imposition of a special tax on incomes derived from this source, and experience would rapidly show whether any such tax would actually hamper the process of production and distribution at any stage. If not, it would justify itself. It would prove that the total profit now absorbed by individuals exceeds, at least by the amount of the tax, the remuneration necessary to maintain that particular economic function.

The other case I will take is that of inherited wealth. This is the main determining factor in the social and economic structure of our time. It is clear on our principle that it stands in quite a different position from that of wealth which is being created from day to day. It can be defended only on two grounds. One is prescriptive right, and the difficulty of disturbing the basis of the economic order. This provides an unanswerable argument against violent and hasty methods, but no argument at all against a gentle and slow-moving policy of economic reorganization. The other argument is that inherited wealth serves several indirect [Pg 198]functions. The desire to provide for children and to found a family is a stimulus to effort. The existence of a leisured class affords possibilities for the free development of originality, and a supply of disinterested men and women for the service of the State. I would suggest once again that the only real test to which the value of these arguments can be submitted is the empirical test. On the face of the facts inherited wealth stands on a different footing from acquired wealth, and Liberal policy is on the right lines in beginning the discrimination of earned from unearned income. The distinction is misconceived only so far as income derived from capital or land may represent the savings of the individual and not his inheritance. The true distinction is between the inherited and the acquired, and while the taxation of acquired wealth may operate, so far as it goes, to diminish the profits, and so far to weaken the motive springs, of industry, it is by no means self-evident that any increase of taxation on inherited wealth would necessarily have that effect, or that it would vitally derange any other social function. It is, again, a matter on which only experience can decide, but if[Pg 199] experience goes to show that we can impose a given tax on inherited wealth without diminishing the available supply of capital and without losing any service of value, the result would be net gain. The State could never be the sole producer, for in production the personal factor is vital, but there is no limit set by the necessities of things to the extension of its control of natural resources, on the one hand, and the accumulated heritage of the past, on the other.

If Liberal policy has committed itself not only to the discrimination of earned and unearned incomes but also to a super-tax on large incomes from whatever source, the ground principle, again, I take to be a respectful doubt whether any single individual is worth to society by any means as much as some individuals obtain. We might, indeed, have to qualify this doubt if the great fortunes of the world fell to the great geniuses. It would be impossible to determine what we ought to pay for a Shakespere, a Browning, a Newton, or a Cobden. Impossible, but fortunately unnecessary. For the man of genius is forced by his own cravings to give, and the only reward that he asks from society is to be[Pg 200] let alone and have some quiet and fresh air. Nor is he in reality entitled, notwithstanding his services, to ask more than the modest sufficiency which enables him to obtain those primary needs of the life of thought and creation, since his creative energy is the response to an inward stimulus which goads him on without regard to the wishes of any one else. The case of the great organizers of industry is rather different, but they, again, so far as their work is socially sound, are driven on more by internal necessity than by the genuine love of gain. They make great profits because their works reach a scale at which, if the balance is on the right side at all, it is certain to be a big balance, and they no doubt tend to be interested in money as the sign of their success, and also as the basis of increased social power. But I believe the direct influence of the lust of gain on this type of mind to have been immensely exaggerated; and as proof I would refer, first, to the readiness of many men of this class to accept and in individual cases actively to promote measures tending to diminish their material gain, and, secondly, to the mass of high business capacity which is at the [Pg 201]command of the public administration for salaries which, as their recipient must be perfectly conscious, bear no relation to the income which it would be open to him to earn in commercial competition.

On the whole, then, we may take it that the principle of the super-tax is based on the conception that when we come to an income of some £5,000 a year we approach the limit of the industrial value of the individual.[12] We are not likely to discourage any service of genuine social value by a rapidly increasing surtax on incomes above that amount. It is more likely that we shall quench the anti-social ardour for unmeasured wealth, for social power, and the vanity of display.

These illustrations may suffice to give some concreteness to the conception of economic justice as the maintenance of social function.[Pg 202] They serve also to show that the true resources of the State are larger and more varied than is generally supposed. The true function of taxation is to secure to society the element in wealth that is of social origin, or, more broadly, all that does not owe its origin to the efforts of living individuals. When taxation, based on these principles, is utilized to secure healthy conditions of existence to the mass of the people it is clear that this is no case of robbing Peter to pay Paul. Peter is not robbed. Apart from the tax it is he who would be robbing the State. A tax which enables the State to secure a certain share of social value is not something deducted from that which the taxpayer has an unlimited right to call his own, but rather a repayment of something which was all along due to society.

But why should the proceeds of the tax go to the poor in particular? Granting that Peter is not robbed, why should Paul be paid? Why should not the proceeds be expended on something of common concern to Peter and Paul alike, for Peter is equally a member of the community? Undoubtedly the only just method of dealing with the common[Pg 203] funds is to expend them in objects which subserve the common good, and there are many directions in which public expenditure does in fact benefit all classes alike. This, it is worth noting, is true even of some important branches of expenditure which in their direct aim concern the poorer classes. Consider, for example, the value of public sanitation, not merely to the poorer regions which would suffer first if it were withheld, but to the richer as well who, seclude themselves as they may, cannot escape infection. In the old days judge and jury, as well as prisoners, would die of gaol fever. Consider, again, the economic value of education, not only to the worker, but to the employer whom he will serve. But when all this is allowed for it must be admitted that we have throughout contemplated a considerable measure of public expenditure in the elimination of poverty. The prime justification of this expenditure is that the prevention of suffering from the actual lack of adequate physical comforts is an essential element in the common good, an object in which all are bound to concern themselves, which all have the right to demand and the duty to fulfil. Any [Pg 204]common life based on the avoidable suffering even of one of those who partake in it is a life not of harmony, but of discord.

But we can go further. We said at the outset that the function of society was to secure to all normal adult members the means of earning by useful work the material necessaries of a healthy and efficient life. We can see now that this is one case and, properly understood, the largest and most far reaching case falling under the general principle of economic justice. This principle lays down that every social function must receive the reward that is sufficient to stimulate and maintain it through the life of the individual. Now, how much this reward may be in any case it is probably impossible to determine otherwise than by specific experiment. But if we grant, in accordance with the idea with which we have been working all along, that it is demanded of all sane adult men and women that they should live as civilized beings, as industrious workers, as good parents, as orderly and efficient citizens, it is, on the other side, the function of the economic organization of society to secure them the material means[Pg 205] of living such a life, and the immediate duty of society is to mark the points at which such means fail and to make good the deficiency. Thus the conditions of social efficiency mark the minimum of industrial remuneration, and if they are not secured without the deliberate action of the State they must be secured by means of the deliberate action of the State. If it is the business of good economic organization to secure the equation between function and maintenance, the first and greatest application of this principle is to the primary needs. These fix the minimum standard of remuneration beyond which we require detailed experiment to tell us at what rate increased value of service rendered necessitates corresponding increase of reward.

It may be objected that such a standard is unattainable. There are those, it may be contended, who are not, and never will be, worth a full efficiency wage. Whatever is done to secure them such a remuneration will only involve net loss. Hence it violates our standard of economic justice. It involves payment for a function of more than it is actually worth, and the discrepancy might be so great as to cripple society. It must,[Pg 206] of course, be admitted that the population contains a certain percentage of the physically incapable, the mentally defective, and the morally uncontrolled. The treatment of these classes, all must agree, is and must be based on other principles than those of economics. One class requires punitive discipline, another needs life-long care, a third—the mentally and morally sound but physically defective—must depend, to its misfortune, on private and public charity. There is no question here of payment for a function, but of ministering to human suffering. It is, of course, desirable on economic as well as on broader grounds that the ministration should be so conceived as to render its object as nearly as possible independent and self-supporting. But in the main all that is done for these classes of the population is, and must be, a charge on the surplus. The real question that may be raised by a critic is whether the considerable proportion of the working class whose earnings actually fall short, as we should contend, of the minimum, could in point of fact earn that minimum. Their actual value, he may urge, is measured by the wage which[Pg 207] they do in fact command in the competitive market, and if their wage falls short of the standard society may make good the deficiency if it will and can, but must not shut its eyes to the fact that in doing so it is performing, not an act of economic justice, but of charity. To this the reply is that the price which naked labour without property can command in bargaining with employers who possess property is no measure at all of the addition which such labour can actually make to wealth. The bargain is unequal, and low remuneration is itself a cause of low efficiency which in turn tends to react unfavourably on remuneration. Conversely, a general improvement in the conditions of life reacts favourably on the productivity of labour. Real wages have risen considerably in the last half century, but the income-tax returns indicate that the wealth of the business and professional man has increased even more rapidly. Up to the efficiency minimum there is, then, every reason to think that a general increase of wages would positively increase the available surplus whether that surplus goes to individuals as profits or to the State as[Pg 208] national revenue. The material improvement of working-class conditions will more than pay its way regarded purely as an economic investment on behalf of society.

This conclusion is strengthened if we consider narrowly what elements of cost the “living wage” ought in principle to cover. We are apt to assume uncritically that the wages earned by the labour of an adult man ought to suffice for the maintenance of an average family, providing for all risks. It ought, we think, to cover not only the food and clothing of wife and children, but the risks of sickness, accident, and unemployment. It ought to provide for education and lay by for old age. If it fails we are apt to think that the wage earner is not self supporting. Now, it is certainly open to doubt whether the actual addition to wealth made by an unskilled labourer denuded of all inherited property would equal the cost represented by the sum of these items. But here our further principle comes into play. He ought not to be denuded of all inherited property. As a citizen he should have a certain share in the social inheritance. This share should be his support[Pg 209] in the times of misfortune, of sickness, and of worklessness, whether due to economic disorganization or to invalidity and old age. His children’s share, again, is the State-provided education. These shares are charges on the social surplus. It does not, if fiscal arrangements are what they should be, infringe upon the income of other individuals, and the man who without further aid than the universally available share in the social inheritance which is to fall to him as a citizen pays his way through life is to be justly regarded as self-supporting.

The central point of Liberal economics, then, is the equation of social service and reward. This is the principle that every function of social value requires such remuneration as serves to stimulate and maintain its effective performance; that every one who performs such a function has the right, in the strict ethical sense of that term, to such remuneration and to no more; that the residue of existing wealth should be at the disposal of the community for social purposes. Further, it is the right, in the same sense, of every person capable of performing some useful social [Pg 210]function that he should have the opportunity of so doing, and it is his right that the remuneration that he receives for it should be his property, i. e. that it should stand at his free disposal enabling him to direct his personal concerns according to his own preferences. These are rights in the sense that they are conditions of the welfare of its members which a well-ordered State will seek by every means to fulfil. But it is not suggested that the way of such fulfilment is plain, or that it could be achieved at a stroke by a revolutionary change in the tenure of property or the system of industry. It is, indeed, implied that the State is vested with a certain overlordship over property in general and a supervisory power over industry in general, and this principle of economic sovereignty may be set side by side with that of economic justice as a no less fundamental conception of economic Liberalism. For here, as elsewhere, liberty implies control. But the manner in which the State is to exercise its controlling power is to be learnt by experience and even in large measure by cautious experiment. We have sought to determine the [Pg 211]principle which should guide its action, the ends at which it is to aim. The systematic study of the means lies rather within the province of economics; and the teaching of history seems to be that progress is more continuous and secure when men are content to deal with problems piecemeal than when they seek to destroy root and branch in order to erect a complete system which has captured the imagination.

It is evident that these conceptions embody many of the ideas that go to make up the framework of Socialist teaching, though they also emphasize elements of individual right and personal independence, of which Socialism at times appears oblivious. The distinction that I would claim for economic Liberalism is that it seeks to do justice to the social and individual factors in industry alike, as opposed to an abstract Socialism which emphasizes the one side and an abstract Individualism which leans its whole weight on the other. By keeping to the conception of harmony as our clue we constantly define the rights of the individual in terms of the common good, and think of the common good in terms of the welfare of[Pg 212] all the individuals who constitute a society. Thus in economics we avoid the confusion of liberty with competition, and see no virtue in the right of a man to get the better of others. At the same time we are not led to minimize the share of personal initiative, talent, or energy in production, but are free to contend for their claim to adequate recognition. A Socialist who is convinced of the logical coherence and practical applicability of his system may dismiss such endeavours to harmonize divergent claims as a half-hearted and illogical series of compromises. It is equally possible that a Socialist who conceives Socialism as consisting in essence in the co-operative organization of industry by consumers, and is convinced that the full solution of industrial problems lies in that direction, should in proportion as he considers the psychological factors in production and investigates the means of realizing his ideal, find himself working back along the path to a point where he will meet the men who are grappling with the problems of the day on the principles here suggested, and will find himself able to move forward in practice in the front ranks of economic Liberalism. If this is so, the growing co-operation of political Liberalism[Pg 213] and Labour, which in the last few years has replaced the antagonism of the ‘nineties, is no mere accident of temporary political convenience, but has its roots deep in the necessities of Democracy.

By L. T. HOBHOUSE

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