Notes
CHAPTER III
Law and Custom in Recent Times
I. Handicraft and Natural Right
As in what has just been said in the last few paragraphs, on the nature and growth of Nationalism, so also as regards the argument which here follows, on the grounds of Ownership, the discussion is designed to cover nothing more than the modern case,—Nationalism and Ownership as these two institutions have taken shape in later times, in the habits of life of the modern civilised peoples, and only in those respects in which these institutions are characteristically modern.
Of course, neither ownership nor nationalism are substantially new and peculiar to recent times and to the modern peoples. Both are ancient institutions, at least in their elements, and something of their kind, more or less effectual, is to be found among barbarians and civilised peoples generally ; though both institutions are wanting or slightly developed among those peoples that are reasonably to be classed as savages. Ownership which has developed so far as to take the form of absentee ownership has also been freely practiced here and there in other times and other places, outside of the European circle of industrial peoples and under material circumstances of a character notably different from those which have prevailed in recent times within the sweep of that industrial civilisation which now dominates Europe and its colonies. So also an onset of nationalism has come up repeatedly in past times and among other peoples, and has in fact served much the same purpose as that sentiment of national integrity which now is at work to abridge and deflect the material fortunes of these civilised peoples. To all appearance, human nature is, by native bent, eminently prone to settle into some such habits of thought as are embodied in these two dominant institutions, and European human nature is no less prone to some such frame of mind than any other. Yet the case of these civilised peoples as it shows up in the immediate present is marked by certain special traits which it seems worth while to inquire into.
In this connection it is as well to recall that in point of native bent and capacities European mankind is still the same as the neolithic European population once was, some ten or twelve thousand years ago. The hybrid mixture of races that occupies the countries of Europe and its colonies is still the same as the European population was in prehistoric (post-glacial) times, so far as regards all hereditary traits, spiritual, mental, and physical. So that the native aptitudes and disposition of these European peoples, and therefore also the limits imposed on their institutional development by their native aptitudes and capacities, are still the same as they were in neolithic antiquity. It follows that the scheme of law and custom which now governs civilised life under modern industrial conditions is still made up out of the same human mentality and still leans on the same spiritual forces that have made the outcome in the past, early and late. It is only that the material circumstances which condition the growth and working of this established scheme of law and custom in recent times are different in certain notable respects from anything that has gone before. By force of habit these altered material circumstances have made some difference in the existing scheme of institutions; but the existing situation is, after all, a variation on an ancient theme, through which runs always the same human strain.
The national integrity of these civilised European peoples has come down from feudal antecedents, and it took on its modern shape during the era of state-making in early modern times, having come into its characteristic modern form through strict habituation under the exacting discipline to which the political traffic of that time subjected all these European populations. Minor agencies, excursions and refinements of the patriotic fancy, have contributed something in the way of elaboration of the theme in later times ; but, by and large, the nationalism of later times is still such as it once took shape under the stern discipline of the era of state-making.
No doubt, in the last analysis it will be found that the political traffic of that time was brought on and conditioned by a profound change in the material circumstances which conditioned the life of the European peoples in that time.1 The like is true for the modern system of ownership, which also took shape about the same time and driven by the same material forces. These driving forces, it is held, were such things as the growth of the handicraft industry, the growth of population, and the growth of trade and the consequent resort to credit.2 The prime mover in the making of the new era, and therefore also in making over the principles of ownership, is evidently the change which was then going forward in the industrial arts, as embodied in the handicraft system of industry.3
Modern ownership and nationalism have both come out of that period of profound change in the industrial arts that gave rise to the handicraft system and to the petty trade that ran along with the growth of handicraft; but all the while this growth of new ideas was conditioned by institutions and ideals that were standing over from an earlier state of things. Law and custom are a product of use and wont, but use and wont will enforce a closer degree of conformity to material circumstances in that range and manner of conduct that has most immediately and intimately to do with the material circumstances. In point of psychological incidence, law and custom in matters of political and civil usage were a degree farther removed from the touch of that disturbance that was set up by the growth of handicraft and the petty trade. So that the political establishment and the national spirit on which the State and its interests are borne up have remained farther in arrears; as contrasted with the new growth of ownership and its rights, powers, and immunities, which have been more intimately touched by the everyday facts of productive industry. Doubtless, as has already been spoken of above, law and custom in matters of ownership will also always be found somewhat in arrears, as compared with those driving forces of industrial change that bring on changes in law and custom. In the nature of things, the scheme of law and custom is always archaic, at all points, in some degree ; always out of date more or less. But the law and custom that rules political relations and political ideals is, by the same token, always more archaic, out of date in a more pronounced degree, than the principles of such human conduct as is of more immediate consequence.4
Föns et origo of the era of handicraft and its new order was the Masterless Man. The handicraft industry took its rise in the interstices of the feudal (manorial) system, which was a settled order of mastery and service, orderly, standardised, and stabilised as fully as might be, resting on a population engaged in mixed farming and bound to the soil. The law and custom of the feudal régime was a balanced scheme of coercion and submission, dependence and fealty, in which all human values—rights and obligations, security of life and limb, equity and justice, neighborly respect and affection, religious profit and loss—were of right to be rated and apportioned according to a settled schedule of graded privilege, standardised superiority and inferiority. It was always and by settled principle a question of gradation in respect of mastery and service. In this scheme of human things there was no place and no room for the masterless man. In its terms he had no ratable human value and no rights which honest folks were bound to respect. In effect, the Mas-erless Man was not to be distinguished from the Sturdy
Beggar. In terms of the nearest modern analogy he would be a tramp, a drifter, a hobo, a species of Industrial Worker of the World at large, taking that term in its simpler and more sinister meaning.
What lends a measure of interest to this masterless man when seen in the perspective of history is the fact that he was the appointed beginning of anew order of industry and the underlying factor of an eventual new dispensation in law and custom. But in his own time and in that institutional setting he was a graceless intruder and a good deal of a nuisance, as still is likely to be the case with any human material that does not fit into the framework of current use and wont. He was an institutional misfit. He owed no allegiance to any master according to the standard methods of allegiance current in that time, and therefore he was a social, industrial, civil, and political encumbrance; very much as is now the case with any I. W. W. who is endowed with no absentee ownership and who disclaims that standardised allegiance to the national establishment that is stipulated by the forms of law and custom in such cases made and provided. And, then as now, the whole duty of loyal citizens in dealing with these homebred aliens was that which is embodied in the watchword of the Legion—”Treat ‘em rough !”
In much the same measure as the feudal régime matured into perfection and settled down to its work, it also grew progressively more irksome to the underlying population ; as would naturally happen in the case of any system of absentee rights and powers, and as has happened more than once since then. Such a system of personal control runs on organised and standardised hardship, and the more efficiently it is organised for its work the greater will be the resulting hardship to the underlying population. Long and steady habituation will go far to make it all right and proper; but there is also always a limit of tolerance, beyond which an increasing net residue of popular hardship begins to work mischief to the system. So, when Knighthood was in Flower the mills of the gods ground out an ever increasing number of restless and graceless ones who turned away from the underpaid virtues of feudal allegiance and went out to seek a livelihood on their own. Feudal allegiance no longer brought any net material advantage to the common man, so soon as the feudal régime had come into full bearing ; very much as national allegiance has ceased to offer any net material advantage to the common man in our own time ; and so, an increasing number of the harder-headed, or hotter-headed, common men drifted loose from those ties of loyalty that so had come to signify nothing but material hardship overlaid with spiritual pomp and circumstance.
So, by drift of circumstance, these masterless men drew together to seek a livelihood by the work of their hands and without formal dependence on the absentee rights and powers of those who owned the material world in that time. Out of the resulting scattered parcels of industrial drifters there grew up in course of time and experience the industrial towns and the arts, principles and mysteries of the handicraft industry. By degrees a new order of life arose and gave rise presently to a new line of habits of thought, and so gave something of a new bent to the subsequent growth of institutions among the European peoples. The modernisation of mediaeval Europe set in.
The denizens of the incipient towns were ungraded masterless men who worked for a living. That is the ground and beginning of the handicraft scheme of things ; and the principles and ideals under shelter of which the handicraft system presently grew great and displaced the spiritual furniture of feudalism were such as emerged by habituation out of these facts of everyday life.
The denizens of these new towns drew together for a concerted defense against the constituted authorities of that time; and out of this experience in illicit manoeuvring along the margin of tolerance, there presently emerged a commonwealth of ungraded masterless men bound together for the common defense and governed by self-imposed rules designed for the common good ; with a jealous eye to the common material interests at home and a stiff defense toward the outside. The insistent need of a common defense kept alive, stabilised, and carried over that trained sense of partisan solidarity which the factional struggles of feudalism and the devout intolerance of the Church had already ground into the moral tissues of Christendom. So that when presently the militant princely State of the era of state-making began to give place to the democratic commonwealth of modern times, a jealous national sentiment of collective ill-will was ready to shift into the place once held by the habit of personal allegiance to a feudal overlord. That habit of bellicose loyalty to a personal superior, which was the most meritorious virtue of chivalry, blended with the popular devotion to the common defence, and so gave rise to that spirit of militant nationalism that pervades Christendom today. In time, under the fostering care of the statesmen who guard the vested interests, this national spirit has headed up in the profligate imperialism of more recent date ; which makes a virtue of getting something for nothing by force and fraud at the cost of any whom it may concern.
But the craftsmen were, after all, masterless men working for a living; men on whose productive industry no absentee claimant had any claim which they felt bound to respect. Out of this workday experience appears to have arisen the common-sense notion that ownership is a “natural right” ; in the sense that what a man has made, whatsoever “he hath mixed his labor with,” that has thereby become his own, to do with it as he will. He has extended over and infused into the material of his work something of that discretionary force and control which, in the nature of things, the masterless man of right exercises in the movements of his own person. So the thing is his by virtue of his having made it. “Natural” ownership is workmanship wrought out and stabilised in a material object.5 By this “natural” right of creative workmanship the masterless man is vested with full discretionary control and disposal over the work of his hands, and so he comes in for a natural right of free bargain and contract in all that concerns his labor and its product.
Trade—in this connection spoken of as the “Petty Trade”—is of the essence of the handicraft system of industry. The trade runs on this “natural right” of free bargain, and comes in on an equal footing with workmanship as an inalienable right of the masterless man. At the same time it is a necessary factor in the handicraft system, being the expedient without which the division of labor that makes the craftsman could not take effect. By force of this natural right of free bargain, ownership passes unimpaired to the party of the second part, who so comes in for the same secure tenure and disposal of the goods. Whatever so passes into the buyer’s possession is his by warrant of the same natural right of free contract, whether the goods in question continue to be held under his hand and eye or are held in absentia. And so absentee ownership comes into the case again, as a natural right tracing back to the workmanship of the owner or vendor.
Craftsmanship and the petty trade, the two creative factors in the handicraft system, call for free contract and secure tenure as a necessary condition of their carrying-on; which by force of circumstances entails ownership in absentia, more particularly when the petty trade presently develops beyond the scale of peddling, huckstering, or “itinerant merchandising,” so called. At the same time ancient precedent is ready to hand, according to which ownership is a prescriptive right grounded in the feudalistic principle of Vested Interest. A vested interest is a prescriptive right to get something for nothing. Absentee ownership as it comes up in recent times, therefore, has all the legitimation given it by those principles of Natural Right that were induced by the workday experience of self-help during the era of handicraft, together with the reinforcement given it by immemorial usage. But the ground to which modern men—jurists, moralists, economists—have preferred to trace its derivation and on which they have preferred to rest its equitable claims has on the whole continued to be the natural right of workmanship, rather than the prescriptive right of vested interest,—that “whatsoever a man hath mixed his labor with,” that is his by virtue of his having made it. According to the moral bias created by age-long experience during the era of handicraft, men are still inclined to justify property rights on the ground of productive industry, serviceable work, rather than prescriptive tenure.
II. The Natural Right of Investment
The “natural” right of property is grounded in the workmanship of the man who “hath mixed his labor with” the materials out of which a valuable article has been created. By this right of ownership the owner is vested with power to dispose of his property by bargain and sale. He may sell for cash or for deferred payment, and he may also lend. In so lending, the use of the valuable article passes to the borrower (debtor) while the usufruct remains with the owner (creditor) in the way of a stated or customary payment for the use of the property. This is the simplest form of absentee ownership that arises out of the “natural” right of property under the principles of the handicraft system. But the masterless men of the crafts had also the natural right to turn their workmanship to account for a valuable consideration in working up materials owned by another, without becoming owners of the resulting product; which gives rise to the wage relation and so brings on a second variant of absentee ownership, still securely guaranteed by the handicraft principle which derives ownership from workmanship and free contract. It was along these two lines —credit and hired labor—that absentee ownership chiefly found its way into the industrial system of recent times, until by degrees it has come to dominate the organisation of industry and has taken over the usufruct of the community’s workmanship.
But included in the scheme of ownership as it stands in recent times there is also an alien strain, not warranted by the principles of Natural Right and not traceable to workmanship. Ownership of natural resources —lands, forests, mineral deposits, water-power, harbor rights, franchises, etc.—rests not on a natural right of workmanship but on the ancient feudalistic ground of privilege and prescriptive tenure, vested interest, which runs back to the right of seizure by force and collusion. The owners of these natural resources own them not by virtue of their having produced or earned them, nor on the workmanlike ground that they are making use of these useful things in productive work. These owners own these things because they own them. That is to say, title of ownership in these natural resources is traceable to an act of seizure, legalised by statute or confirmed by long undisturbed possession. All this is wholly foreign to the system of Natural Rights, altogether at cross purposes with the handicraft principle of workmanship, but quite securely incorporated in the established order of law and custom. It is, in effect, a remnant of feudalism ; that is to say, absentee ownership without apology or afterthought.
Not that all ownership of natural resources is absentee ownership. Nor is it to be said that such ownership may not be grounded in the owner’s workmanship. The small farmer, e. g., is not usually an absentee owner. The land owned and worked by the small farmer without hired help is raw material with which he mixes his labor in the work of producing crops, and so is to be counted in as a typical case of ownership based on workmanship. The like is true for other natural resources that are made use of in a similar way in other productive work. These things are not to be classed under the head of absentee ownership so long as these useful things are fully employed as ways and means of work by their owners alone. It is only when and in so far as such useful things are worked by the help of others than their owners, or so far as they are held out of productive use by their owners, that they are rightly to be classed under absentee ownership; only in so far as their productive use is disjoined from their usufruct, so that workmanship and ownership part company.
It follows that the small farmer’s land-holding falls into the scheme of Natural Rights on an equal footing with the craftsmen’s right to work for a living and to dispose of their product or their labor under the rule of free contract. It is not unusual to defend private property in land and other natural resources on the plea that the cultivator must have unhampered use of the land v/hich is the raw material of his work. In the main, as things have turned in recent times, this plea is pettifoggery and subterfuge. It is not the small farmer’s holding that needs apology or defense; and in the main the small farmer and his husbandry by self-help are already out of date in those communities where the machine system of industry has thoroughly taken effect. It is also to be noted that in the practical working-out of law and custom in all the civilised countries, absenteeism throws no cloud on the title to lands or other material resources. In this connection workmanship and the needs of productive work give no title, not even title to “improvements.” Except by way of sophistication and obiter dictum, the tenure of lands and similar resources is not brought in under the “natural” principle of creative workmanship, but remains a tenure by prescription,—that is to say by legalized seizure. It might perhaps be argued that “squatter’s rights” are a case of tenure arising out of workmanship, but closer attention to the question will show that the squatter’s right, whatever it may amount to, rests on priority of seizure and possession.
Indeed, in the practical working-out of law and custom during the era of Natural Rights, the cultivator’s “natural” claim to the soil on grounds of workmanship has gone by default, even where a claim might have been sustained on that ground ; for the reason, apparently, that there has been no sufficiently massive body of masterless men engaged in husbandry, such as would bend custom to its own habitual way of thinking about these things. On the other hand, the Landed Interest was vested with title by prescription and was a formidable spokesman for absentee ownership, tenacious of its prescriptive rights and full of an habitual conviction of the justice of its cause. So the feudalistic principle of absentee ownership by prescriptive right of seizure and possession still stands over as the accepted rule covering land and other natural resources.
As is well known, from the outset the handicraft system of industry included the petty trade, as a necessary factor in the work to be done. Therefore, that workday routine out of which the principles of Natural Right arose included also daily contact with the market and familiarity with the conduct of trade ; so that all those preconceptions and usages of free contract and of bargain and sale which were involved in the conduct of the petty trade came to be worked into the texture of Natural Rights, by unbroken habit, and became a constituent part of the system. In the balanced order of the handicraft system, the trader, too, was counted in as a workman engaged in serviceable work and therefore entitled to a livelihood on the ground of work done. At the outset the petty trade runs along with handicraft as a traffic of give and take, a method of keeping the balance of work among the specialised workmen and between the body of these workmen and the world outside. It was a traffic in the nature of marketing, huckstering, or peddling, and much of it was not far removed from barter.
But the traffic presently grew greater in range, scak, and volume, and took on more of the character of “business,” in that the necessary management of contracts, bargaining, and accounts became an occupation distinct from the handling and care of the merchandise in transit and in the market-place. The exigencies of the larger volume of traffic over longer distances and larger intervals of time necessarily removed the responsible merchant from personal contact with his merchantable goods; so that ever more and more he shifted from the footing of an itinerant huckster who handled his own wares in transit and in the market-place to that of an enterprising absentee investor who took care of the business ; while agents, supercargoes, factors took over the handling, carriage, and even the buying and selling of the goods, which so passed under the merchant’s ownership without passing under his hand. By degrees, instead of an itinerant merchant he grew to be a “merchant prince,” and instead of being an industrial occupation the trade became a business enterprise.6 But even the “merchant adventurer” of that time continued in close touch with the merchandising traffic from which his profits were drawn, as well as with the productive industry which supplied the merchantable goods.7
The growth of absentee ownership out of the craftsman’s natural right grounded in his workmanship comes on first and most visibly in the merchandising trade. Investment, that is to say absentee ownership in the way of business enterprise, was commercial investment. It was in the shape of commercial enterprise that the modern world got used to the practice of investment for a profit and so learned to appreciate business principles and to value the investor and his work. But investment presently made its appearance also in industry proper, in the shape of ownership of industrial equipment and materials and the employment of hired labor.
By the time when the era of handicraft was drawing to a close and the transition to the machine industry and the factory system had set in, investment in industry was already a customary fact, particularly in certain of the leading industries, as, e. g., in textiles. It was absentee ownership, and would be recognised as such by anyone looking back to the facts of that time from the standpoint of the present ; but it does not appear to have seemed so, at least not obtrusively so, to the men of that time, who had to do with the industrial situation as it then lay before them. Absenteeism was not the main and obvious feature of the case. It was still the tradition, and in great part the practical rule, that the owner of the works was on the ground in person and acted as overseer and director of the work in hand; although the work done was not the work of his own hands.8
But with the transition to the machine industry and the factory system the business organisation of industry gradually underwent such a change as to bring investment and absenteeism very practically into the foreground; so that since then, during the period which can properly be called “recent times” in the industrial respect, absentee ownership has been the rule in industry and investment has been the type-form of ownership and control. By a slight stretch it can be said that in the days of handicraft absentee ownership was an incidental or adventitious feature of the case, while since that time it will hold true that it is the ordinary and typical practice; it now is that which is expected, and anything else is regarded as exceptional and sporadic.
Very much as was the case in the petty trade of the Middle Ages, so also in the handicraft industry; by degrees but unavoidably, absentee ownership came in so soon and so far as the scale of operation advanced to such a point that trade or industry became a matter of teamwork. With the advance of specialisation and division of labor the equipment required for carrying on any given line of work presently became larger than what a workman could ordinarily provide out of his own work as he went along, at the same time that the equipment took on more and more of the character of a “plant” designed for the joint use of a number of workmen. Such a plant would ordinarily be the property of a master workman or of a partnership of such masters, who thereby and in that degree became absentee owners of the plant. The like is true for the ownership of the materials employed and of the finished product.
Yet it was still the tradition in Adam Smith’s time, at the close of the handicraft era in England, that the wealth so invested in trade and industry was, in the natural and normal run of things, an accumulation of useful goods saved out of the productive work of its owner, and it was likewise the tradition that the owner whose savings were so employed in production should “naturally” direct and oversee the work in which his savings were employed. What was “natural” in the Eighteenth Century was that which had the sanction of unbroken tradition ; and so far as touches the economic life in that time, that was “natural” which was attested by unbroken habituation under the régime of handicraft.
Adam Smith spoke the language of what was to him the historical present, that is to say the recent past of his time, and he has left a luminous record of the state of things economic in his time as formulated in terms of the habits of thought with which the recent past had invested that generation of men. But in the historical sequence of things he stood at the critical point of transition to a new order in industry and in ownership, and what was “natural” in his view of things, therefore, ceased to be the common run of things from and after the date at which his luminous formulation of economic laws was drawn up. What had gone before was the era of handicraft and the petty trade, the habitual outlook of which had become (second) nature to the thoughtful men of that time; what has followed after is the era of the machine industry and business enterprise, in which the “natural” laws and rights handed on from the era of handicraft are playing the rôle of a “dead hand.”
From and after Adam Smith’s date (last quarter of the eighteenth century) a new era sets in in industry and business. As an incident of the new era there sets in also a visible and widening division between industrial work and business enterprise. The era of the machine industry opens in England in that time, and it opens presently after for the other civilised peoples also ; at the same time that the businesslike management of industrial concerns begins to shift from a footing of workday participation in the work done, to that of absentee ownership and control. Instead of continuing to act as foreman of the shop, according to the ancient tradition, the owner began to withdraw more and more from personal contact and direction of the work in hand and to give his attention to the financial end of the enterprise and to control the work by taking care of the running balance of bargains involved in procuring labor and materials and disposing of the product. Instead of a master workman, he became a business man engaged in a quest of profits, very much after the pattern of business men engaged in commercial enterprise. The result was that investment and absentee ownership presently became the rule in the mechanical industries, as it already was the rule in commerce and as it had long been the rule in husbandry.
This rearrangement of economic factors, and division of economic activities, was brought on by the increasing scale of the industrial plant and operations, wherever and so far as the new technology of the machine process took effect. And the characterisation just offered is intended to apply only so far and so fast as the new mechanistic technology gradually took over the industries of the country. There came on a progressive, but none the less revolutionary, change in the standard type of industrial business, as well as in the ways and means of industrial work ; and the same line of change has gone forward unremittingly from that time to the present, as it is also visibly running on into the future.
If the word be defined to suit the case, “capitalism” in industry may be said to have arisen in that time and out of the circumstances described. Until the machine process had made serious inroads in the standard industries, and until things had consequently begun to shift to the new scale, the business man in industry continued, in the typical case, to be personally concerned with the work in hand; and until this change took effect, therefore, the employer-owner answered quite reasonably to the character which Adam Smith assigned him, as a master workman who owned certain industrial appliances which he made use of with the help of hired workmen. But from this time on he became, in the typical case, an absentee manager with a funded interest in the works as a going business concern. The visible relation between the owner and the works shifted from a personal footing of workmanship to an impersonal footing of absentee ownership resting on an investment of funds. Under the new dispensation the owner’s guiding interest centered on the earnings of the concern rather than on the workmen and their work. The works—mill, factory, or whatever word may be preferred—became a business concern, a “going concern” which was valued and capitalised on its earning-capacity; and the businesslike management of industry, accordingly, centered upon the net earnings to be derived in a competitive market,—earnings derived from the margin of the sale price of the product over the purchase price of the labor, materials, and equipment employed in its production. Industrial business became a commercial enterprise, and the industrial plant became a going cotï-cern capitalised on its earning-capacity.9
It is not that nothing of the kind is to be found in the practice of earlier times. Indeed it is quite easy so to analyse the facts of property-holding in any age as to show that the value of absentee ownership always and everywhere is necessarily a matter of the capitalisation of the earning-capacity of the property so held. It is more difficult, perhaps it would prove impracticable, to apply the same line of reasoning to the same end in the case of other than absentee ownership. At any rate the matter is fairly obvious in the case of absentee ownership, early or late, to anyone who has occasion to see it from that point of view. But with the advance into the new era, into what is properly to be called recent times in business and industry, the capitalisation of earning-capacity comes to be the standard practice in the conduct of business finance, and calls attention to itself as a dominant fact in the situation that has arisen. The value of any investment is measured by its capitalised earning-capacity, and the endeavors of any businesslike management therefore unavoidably center on net earnings.10
It should be worth while to take stock of this earning-capacity that underlies modern business enterprise, and see what it comes of and what it comes to. The earning-capacity of any given going concern is measured by the habitual excess of its income over its outlay. The net aggregate income, and therefore the net aggregate earnings, of the business community taken as a whole is derived from the margin of product by which the output of the industrial system exceeds its cost—counting cost and output in physical terms. This may conveniently be called the net product of industry. So far as the country’s industries have been placed on a business footing; that is to say, so far as the control of the industries has been taken over by business men on a basis of investment for a profit ; so far the aggregate earnings of the business community will tend to coincide with the net product of the industrial system. This coincidence, or identity, between the net aggregate product of industry and the net aggregate earnings of business is by no means exact; but then, the whole system of absentee ownership and businesslike control is also not yet complete or altogether supreme, either in range or scope. Indeed, it is safe to affirm that the earnings of business come as near taking up the total net product of industry as one has a right to expect, regard being had to the present imperfect state of things.
It is this net product, counted in terms of its price, that makes up the earnings of business and so makes the basis of capitalisation; for earnings and capital, both, are counted in terms of price, and not otherwise. It is the ownership of materials and equipment that enables the capitalisation to be made ; but ownership does not of itself create a net product, and so it does not give rise to earnings, but only to the legal claim by force of which the earnings go to the owners of the capitalised wealth. Production is a matter of workmanship, whereas’ earnings are a matter of business. And so the question returns: What are the circumstances by force of which industry yields a net product, which can be turned to account as earnings ?
It will appear on analysis that there are two main circumstances which enable human industry to turn out a net product, and which govern its rate and volume: (a) the state of the industrial arts, and (b) the growth of population. Transiently, production will also be limited by the available stock of industrial appliances, materials, and means of subsistence ; as well as by a variety of hindrances of a conventional or institutional nature, chief among them being a businesslike curtailment of production with a view to private gain. But always the state of the industrial arts and the state of man-power provided by the population will determine what will be the productive capacity of the industrial system; and in the absence of disturbing causes of an extraneous kind the effectual rate and volume of production will approach the limit so set by these two abiding factors of workmanship.
At the same time, by and large, the growth of population is governed by the state of the industrial arts, in such a way that the numbers of the population cannot exceed the carrying capacity of the industrial arts as known and practiced at the time, although the population may, and habitually does, fall somewhat short of that limit. It appears, therefore, that the prime creative factor in human industry is the state of the industrial arts ; that is to say, the determining fact which enables human work to turn out a useful product is the accumulated knowledge, skill, and judgment that goes into the work,—also called technology or workmanship.
The dominant creative force of this accumulated industrial wisdom, within the sweep of which human workmanship lives and moves, has become evident more and more obtrusively since the era of the mechanical industry set in. The increasingly impersonal sweep of mechanical processes in industry during the past century has brought a realisation of the indispensably creative function of technology. But in the light of what the machine industry has made plain it is readily to be seen that the state of the industrial arts, the accumulated knowledge of ways and means, must in the nature of things always be the prime factor in human industry. So that in this respect the technology of this mechanistic era differs from what has gone before only in that the creative primacy of the state of the industrial arts is a more palpable fact today than ever before.
The state of the industrial arts determines what natural materials will be useful as well as how they will be made use of.11 For the greater part the state of the industrial arts is a heritage out of the past, a knowledge of ways and means hit upon and tried out by past generations and from them handed on to their posterity; and for the greater part also any addition, extension, advance, or improvement in technology is a rearrangement of and a refinement upon the elements of such knowledge so handed down from the past. Industrial inventions and improvements invariably consist, in the main, of elements of knowledge drawn from common notoriety but turned to new and technologically unexpected uses. The novelties of today are a technologically later generation of the commonplaces of the day before yesterday.12
Evidently the state of the industrial arts is of the nature of a joint stock, worked out, held, carried forward, and made use of by those who live within the sweep of the industrial community. In this bearing the industrial community is a joint going-concern. And the “industrial community” does not mean the Nation; since no nation is or can be self-sufficient in this matter of technology. Of course, the patriotic spirit of nationalism drives men to imagine vain things of that kind; but all that is in the nature of a pathological make-believe, which has only a paranoiac relation to the facts of the case. And of course, the statesmen endeavor to hedge the nation about with restrictions designed to set up some sort of technological self-sufficiency and isolation ; but all that is done in the service of technological sterilisation and decay, with a paranoiac view to the defeat of outsiders. It is only that the statesmen are running true to form. The industrial community as a technologically going concern is so much of mankind as is living in and by the industrial arts that go to make up the effectual system of technological knowledge and practice. And in this relation, as in most others, the national frontiers are the frontiers of the national futilities.
The state of the industrial arts is a joint stock of technological knowledge and practice worked out, accumulated, and carried forward by the industrial population which lives and moves within the sweep of this industrial system. As regards the modern mechanical industry this immaterial equipment of knowledge and training is held jointly by the peoples of Christendom. And the broad center of its diffusion still is that community of peoples that cluster about the North Sea, together with their colonial extensions into newer lands. It is this joint stock of industrial knowledge and practice that makes the nations of Christendom formidable, and it is this same joint stock of technology that gives to the modern world’s tangible assets whatever use and value they have. Tangible assets, considered simply as material objects, are inert, transient and trivial, compared with the abiding efficiency of that living structure of technology that has created them and continues to turn them to account.
But for the transient time being the material appliances of industry, the natural resources and the material equipment in hand, are indispensable to the conduct of industry; since the current state of the industrial arts does its creative work only by use of suitable mechanical apparatus. Modern industry is a system of mechanical processes devised and directed by expert knowledge and carried out by means of mechanical apparatus and raw materials. For the transient time being, therefore, any person who has a legal right to withhold any part of the necessary industrial apparatus or materials from current use will be in a position to impose terms and exact obedience, on pain of rendering the community’s joint stock of technology inoperative to that extent. Ownership of industrial equipment and natural resources confers such a right legally to enforce unemployment, and so to make the community’s workmanship useless to that extent. This is the Natural Right of Investment.
Ownership confers a legal right of sabotage, and absentee ownership vests the owner with the power of sabotage at a distance, by help of the constituted authorities whose duty it is to enforce the legal rights of citizens. This legal right of sabotage is commonly exercised only to the extent of a partial and fluctuating unemployment of the material equipment and therefore of the available workmanship; only to such an extent as seems wise for the enforcement of terms satisfactory to the owners,— only so far “as the traffic will bear.” It is to the owner’s interest to derive an income from these his legal rights ; and in the long run there will be no income derivable from equipment or natural resources that are wholly unemployed,13 or from man-power which is not allowed to work.
So the common practice has come to be partial employment of equipment and man-power on terms satisfactory to the owners; often rising to something near full employment for a limited time, but always with the reservation that the owner retains his legal right to withhold his property from productive use in whole or in part. Plainly, ownership would be nothing better than an idle gesture without this legal right of sabotage. Without the power of discretionary idleness, without the right to keep the work out of the hands of the workmen and the product out of the market, investment and business enterprise would cease. This is the larger meaning of the Security of Property.
By virtue of this legal right of sabotage which inheres as a natural right in the ownership of industrially useful things, the owners are able to dictate satisfactory terms; so that they come in for the usufruct of the community’s industrial knowledge and practice, with such deductions as are necessary to enforce their terms and such concessions as will induce the underlying population to go on with the work. This making of terms is called “Charging what the traffic will bear.” It consists, on the one hand, in stopping down production to such a volume as will bring the largest net returns in terms of price, and in allowing so much of a livelihood to the working force of technicians and workmen, on the other hand, as will induce them to turn out this limited output. It evidently calls for a shrewd balancing of production against price, such as is best served by a hard head and a cool heart. In the ideal case, in so far as the “Law of Balanced Return” works out to a nicety, the output of production should be held to such a volume that the resulting price of the limited output will take up the entire purchasing power of the underlying population, at the same time that the livelihood which the owners allow their working force of technicians and workmen is held down to the “subsistence minimum.” But such a precise balance is not commonly maintained in the practical management of affairs. The difficulties arising out of a very complex and fluctuating situation are very perplexing; so that in practice it is necessary to allow for a certain margin of error, which a businesslike (safe and sane) management will bring in on the conservative side, to the effect that the volume of production and the allowance of livelihood will commonly fall short of what the traffic would bear rather than exceed that amount.
It appears, therefore (a) that industrial appliances and materials (tangible assets), as well as the industrial man-power, are productive agencies because and so far as the accumulated industrial knowledge and practice make them so; (b) that investment in industrial plant and natural resources is worth while to the investor because and so far as his ownership of these useful things enables him to control and limit the operation of the industrial arts which make these things useful,—that is to say, because and so far as his ownership of these things confers on him the usufruct of the community’s workmanship; (c) the earning-capacity of these assets, which gives them their value as property, is measured by the net returns—in terms of price—which come to their owner as usufructuary or pensioner on the community’s workmanship ; (d) these valuable assets are assets to the amount of their capitalised value, that is to say to the amount of their funded earning-capacity; (e) their earning-capacity is determined by what the traffic will bear, that is to say by curtailing production to such an amount that the output multiplied by the .price per unit will yield the largest net aggregate return; so that (f) the natural right of investment becomes, in effect, a vested right of use and abuse over the current industrial knowledge and practice.14
1: Cf. Edward Jenks, Law and Politics in the Middle Ages.
2: Cf. Sombart, Moderne Kapitalismus, bk. i.
3: Cf. The Instinct of Workmanship, ch. vi.—The literature dealing with this topic is excellent and very extensive, in all the modern languages.
4: On the other hand, as a further term of comparison, the scheme of religious observances, e.g., is necessarily even more archaic, more widely out of date; since religious observances, after all, have little or no immediate industrial value and are not in any pronounced degree exposed to the direct and intimate impact of that habituation that is enforced by the state of the industrial arts. So that while the political institutions and ideals in vogue today may be said to date back a few hundred years for their main substance; the religious observances and ideals of the present still draw on dates and experience lying a few thousand years in the past, being in great part erected out of elements of habit supplied by the pastoral civilisations of remote antiquity. Yet even the divine and immutable verities of the Faith have not altogether escaped the corrosive touch of this later state of the industrial arts. But for all the impact of new habits to which it is exposed, there still hangs about the Faith and its reactionary adepts an air of hoary antiquity, compared with which the mediaeval ideals of the statesmen are a recent growth.
5: Cf. Locke, Of Civil Government, ch. v ; See also The Theory of Business Enterprise, ch. iv., for a more extended discussion ; also, Edward Jenks, Law and Politics in the Middle Ages.
6: Cf. Ehrenberg, Das Zeitalter der Fugger, where this transition is shown in syncopated form in the history of the House of Fugger, from the time when Jakob Fugger I came into Augsburg with a peddler’s pack, to the great days of the third generation. A recent parallel may be found in the fortunes of the House of Guggenheim, which also shows the larger dimensions and swifter pace of the current facts in a felicitous way.
7: Cf. Thomas Mun, England’s Treasure by Forraign Trade, which shows the qualifications and daily occupation of a merchant of the larger sort at the middle of the sixteenth Century.
8: Cf. Bücher, Entstehung der Volkswirtschaft, No. V, “Niedergang des Handwerks”; Ashley, Economic History and Theory, Part II.
9: The economists and others who discuss business and industry as carried on in that time—late eighteenth and early nineteenth century—do not speak of “capitalisation of earning-capacity” ; but business practice at the time gives evidence of the fact. Then as always the theoretical discussions endeavored to formulate the new facts in terms derived from an earlier state of things. Indeed, it has taken something like a hundred years for the formulas of the economists to adapt themselves to the new run of facts in business and industry which set in in the days of Adam Smith. Right lately the economists have begun to recognise that “capital” means “capitalisation of earning-capacity”; but when seen in the long perspective of history it is evident that the business men who had to do with these things were learning to do business on that footing something over a hundred years ago.
10: Cf. The Theory of Business Enterprise, ch. vi; W. H. Lyon, Capitalisation, chs. ii and iii.
11: E. g., in prehistoric times men (or more probably women) invented the domestication of certain crop-plants, and presently also of certain animals. By virtue of these technological discoveries in ancient times these products of nature came to be ways and means of human industry. And they have continued to hold their place in the industrial system since then; so that the life of the civilised peoples still depends on the continued use of these industrial appliances, and those lands and soils which lend themselves to use in the resulting system of husbandry are valuable natural resources in the precise measure in which the domestication of plants and animals has made them so. So, again, in later times, within the era of the machine industry, petroleum and rubber, e. g., which were of no account a hundred years ago, have come to be indispensable factors in the industrial situation today, because technology has made them so. There is no end to the number of instances that might be adduced in illustration of this thesis, because the same proposition applies to all natural materials or processes that are or have been turned to.human use. It holds true throughout that “Invention is the mother of necessity” and that workmanship turns brute matter into natural resources, ways and means of productive industry.
12: Cf. The Instinct of Workmanship, chapter iii, especially pp. 103-112.
13: This does not overlook the case of speculative real estate which is held quite idle for the time being with a view to a lump gain in the future, in which case sabotage is carried to perfection for the time being.
14: Cf. Two .papers “On the Nature of Capital,” in the Quarterly Journal of Economics, August and November, 1908; reprinted in The Place of Science in Modern Civilisation and Other Essays, pp. 324-386.