Chapters on Socialism

John Stuart Mill

Chapter 3

The Objections Examined.

``The discussion that is now required is one that must go down to the very first principles of existing society.''---J. S. MILL.

It is impossible to deny that the considerations brought to notice in the preceding chapter, make out a frightful case either against the existing order of society, or against the position of man himself in this world. How much of the evils should be referred to the one, and how much to the other, is the principal theoretic question which has to be resolved. But the strongest case is susceptible of exaggeration; and it will have been evident to many readers, even from the passages I have quoted, that such exaggeration is not wanting in the representations of the ablest and most candid Socialists. Though much of their allegations is unanswerable, not a little is the result of errors in political economy; by which, let me say once for all, I do not mean the rejection of any practical rules of policy which have been laid down by political economists: I mean ignorance of economic facts, and of the causes by which the economic phenomena of society as it is, are actually determined.

In the first place it is unhappily true that the wages of ordinary labor in all the countries of Europe are wretchedly insufficient to supply the physical and moral necessities of the population in any tolerable measure. But when it is further alleged that even this insufficient remuneration has a tendency to diminish; that there is, in the words of M. Louis Blanc, une baisse continue des salaires; the assertion is in opposition to all accurate information, and to many notorious facts. It has yet to be proved that there is any country in the civilized world where the ordinary wages of labor, estimated either in money or in articles of consumption are declining; while in many they are, on the whole, on the increase; and an increase which is becoming not slower, but more rapid. There are, occasionally, branches of industry which are being gradually superseded by something else, and in those, until production accommodates itself to demand, wages are depressed; which is an evil, but a temporary one, and would admit of great alleviation even in the present system of social economy. A diminution thus produced of the reward of labor in some particular employment, is the effect and the evidence of increased remuneration, or of a new source of remuneration, in some other; the total and the average remuneration being undiminished, or even increased. To make out an appearance of diminution in the rate of wages in any leading branch of industry, it is always found necessary to compare some month or year of special depression at the present time, with the average rate, or even some exceptionally high rate, at an earlier time. The vicissitudes are no doubt a great evil, but they were as frequent and as severe in former periods of economical history as now. The greater scale of the transactions, and the greater number of persons involved in each fluctuation, may make the fluctuation appear greater, but, though a larger population affords more sufferers, the evil does not weigh heavier on each of them individually. There is much evidence of improvement, and none that is at all trustworthy, of deterioration, in the mode of living of the laboring population of the countries of Europe; when there is any appearance to the contrary it is local or partial, and can always be traced either to the pressure of some temporary calamity, or to some bad law or unwise act of government which admits of being corrected, while the permanent causes all operate in the direction of improvement.

M. Louis Blanc, therefore, while showing himself much more enlightened than the older school of levelers and democrats, inasmuch as he recognizes the connection between low wages and the over-rapid increase of population, appears to have fallen into the same error which was at first committed by Malthus and his followers, that of supposing that because population has a greater power of increase than subsistence, its pressure upon subsistence must be always growing more severe. The difference is that the early. Malthusians thought this an irrepressible tendency, while M. Louis Blanc thinks that it can be repressed, but only under a system of Communism. It is a great point gained for truth when it comes to be seen that the tendency to over-population is a fact which Communism, as well as the existing -order of society, would have to deal with. And it is much to be rejoiced at that this necessity is admitted by the most considerable chiefs of all existing schools of Socialism. Owen and Fourier, no less than M. Louis Blanc, admitted it, and claimed for their respective systems a pre-eminent power of dealing with this difficulty. However, this may be, experience shows that in the existing state of society the pressure of population on subsistence, which is the principal cause of low wages, though a great, is not an increasing evil; on the contrary, the progress of all that is called civilization has a tendency to diminish it, partly by the more rapid increase of the means of employing and maintaining labor, partly by the increased facilities opened to labor for transporting itself to new countries and unoccupied fields of employment, and partly by a general improvement in the intelligence and prudence of the population. This progress, no doubt, is slow; but it is much that such progress should take place at all, while we are still only in the first stage of that public movement for the education of the whole people, which when more advanced must add greatly to the force of the two causes of improvement specified above. It is, of course, open to discussion what form of society has the greatest power of dealing successfully with the pressure of population on subsistence, and on this question there is much to be said for Socialism; what was long thought to be its weakest point will perhaps, prove to be one of its strongest. But it has no just claim to be considered as the sole means of preventing the general and growing degradation of the mass of mankind through the peculiar tendency of poverty to produce overpopulation. Society, as at present constituted, is not descending into that abyss, but gradually, though slowly, rising out of it, and this improvement is likely to be progressive if bad laws do not interfere with it.

Next, it must be observed that Socialists generally, and even the most enlightened of them, have a very imperfect and one-sided notion of the operation of competition. They see half its effects, and overlook the other half; they regard it as an agency for grinding down every one's remuneration; for obliging every one to accept less wages for his labor, or a less price for his commodities, which would be true only if every one had to dispose of his labor or his commodities to some great monopolist, and the competition were all on one side. They forget that competition is a cause of high prices and values as well as of low; that the buyers of labor and commodities compete with one another as well as the sellers; and that if it is competition which keeps the prices of labor and commodities as low as they are, it is competition which prevents them from falling still lower. In truth, when competition is perfectly free on both sides, its tendency is not specially either to raise or to lower the price of articles, but to equalize it; to level inequalities of remuneration, and to reduce all to a general average, a result which, in so far as realized (no doubt very imperfectly) is, on Socialistic principles, desirable. But if, disregarding for the time that part of the effects of competition which consists in keeping up prices, we fix our attention on its effect in keeping them down, and contemplate this effect in reference solely to the interests of the laboring classes, it would seem that if competition keeps down wages, and so gives a motive to the laboring classes to withdraw the labor market from the full influence of competition, if they can, it must on the other hand have credit for keeping down the prices of the articles on which wages are expended, to the great advantage of those who depend on wages. To meet this consideration Socialists, as we said in our quotation from M. Louis Blanc, are reduced to affirm that the low prices of commodities produced by competition are delusive, and lead in the end to higher prices than before, because when the richest competitor has got rid of all his rivals, he commands the market and can demand any price he pleases. Now, the commonest experience shows that this state of things, under really free competition, is wholly imaginary. The richest competitor neither does nor can get rid of all his rivals, and establish himself in exclusive possession of the market; and it is not the fact that any important branch of industry or commerce formerly divided among many has become, or shows any tendency to become, the monopoly of a few.

The kind of policy described is sometimes possible where, as in the case of railways, the only competition possible is between two or three great companies, the operations being on too vast a scale to be within the reach of individual capitalists; and this is one of the reasons why businesses which require to be carried on by great joint-stock enterprises cannot be trusted to competition, but when not reserved by the state to itself, ought to be carried on under conditions prescribed, and from time to time varied by the state, for the purpose of insuring to the public a cheaper supply of its wants than would be afforded by private interest in the absence of sufficient competition. But in the ordinary branches of industry no one rich competitor has it in his power to drive out all the smaller ones. Some businesses show a tendency to pass out of the hands of many small producers or dealers into a smaller number of larger ones; but the cases in which this happens are those in which the possession of a larger capital permits the adoption of more powerful machinery, more efficient and more expensive processes, or a better organized and more economical mode of carrying on business, and thus enables the large dealer legitimately and permanently to supply the commodity cheaper than can be done on the small scale; to the advantage of the consumers, and therefore of the laboring classes, and diminishing, pro tanto, that waste of the resources of the community so much complained of by Socialists, the unnecessary multiplication of mere distributors, and of the various other classes whom Fourier calls the parasites of industry. When this change is effected, the larger capitalists, either individual or joint-stock, among whom the business is divided, are seldom, if ever, in any considerable branch of commerce, so few as that competition shall not continue to act between them; so, that the saving in cost, which enabled them to undersell the small dealers, continues afterwards, as at first, to be passed on, in lower prices, to their customers. The operation, therefore, of competition in keeping down the price of commodities, including those on which wages are expended, is not illusive but real, and, we may add, is a growing, not a declining, fact.

But there are other respects, equally important, in which the charges brought by Socialists against competition do not, admit of so complete an answer. Competition is the best security for cheapness, but by no means a security for quality. In former times, when producers and consumers were less numerous, it was a security for both. The market was not large enough, nor the means of publicity sufficient to enable a dealer to make a fortune by continually attracting new customers: his success depended on his retaining those that he had; and when a dealer furnished good articles, or when he did not, the fact was soon known to those whom it concerned, and he acquired a character for honest or dishonest dealing of more importance to him than the gain that would be made by cheating casual purchasers. But on the great scale of modern transactions, with the great multiplication of competition and the immense increase in the quantity of business competed for, dealers are so little dependent on permanent customers that character is much less essential to them, while there is also far less certainty of their obtaining the character they deserve. The low prices which a tradesman advertises are known to a thousand, for one who has discovered for himself or learned from others, that the bad quality of the goods is more than an equivalent for their cheapness; while at the same time the much greater fortunes now made by some dealers excite the cupidity of all, and the greed of rapid gain substitutes itself for the modest desire to make a living by their business, In this manner, as wealth increases and greater prizes seem to be within reach, more and more of a gambling spirit is introduced into commerce; and where this prevails not only are the simplest maxims of prudence disregarded, but all, even the most perilous, forms of pecuniary improbity receive a terrible stimulus. This is the meaning of what is called the intensity of modem competition. It is further to be mentioned that when this intensity has reached a certain height, and when a portion of the producers of an article, or the dealers in it, have resorted to any of the modes of fraud, such as adulteration, giving short measure, etc., of the increase of which there is now so much complaint, the temptation is immense on these to adopt the fraudulent practices, who would not have originated them; for the public are aware of the low prices fallaciously produced by the frauds, but do not find out at first, if ever, that the article is not worth the lower price; and they will not go on paying a higher price for a better article, and the honest dealer is placed at a terrible disadvantage. Thus the frauds begun by a few, become customs of the trade, and the morality of the trading classes is more and more deteriorated.

On this point, therefore, Socialists have really made out the existence, not only of a great evil, but of one which grows and tends to grow with the growth of population and wealth. It must be said, however, that society has never yet used the means which are already in its power of grappling with this evil. The laws against commercial frauds are very defective, and their execution still more so. Laws of this description have no chance of being really enforced unless it is the special duty of some one to enforce them. They are specially in need of a public prosecutor. It is still to be discovered how far it is possible to repress by means of the criminal law a class of misdeeds which are now seldom brought before the tribunals, and to which, when brought, the judicial administration of this country is most unduly lenient. The most important class, however, of these frauds, to the mass of the people, those which affect the price or quality of articles of daily consumption, can be in a great measure overcome by the institution of co÷perative stores. By this plan any body of consumers who form themselves into an association for the purpose, are enabled to pass over the retail dealers and obtain their articles direct from the wholesale merchants, or, what is better (now that wholesale co÷perative agencies have been established,) from the producers, thus freeing themselves from the heavy tax now paid to the distributing classes, and at the same time eliminate the usual perpetrators of adulterations and other frauds. Distribution thus becomes a work performed by agents selected and paid by those who have no interest in anything but the cheapness and goodness of the article; and the distributers are capable of being thus reduced to the numbers which the quantity of work to be done really requires. The difficulties of the Plan consist in the skill and trustworthiness required in the managers, and the imperfect nature of the control which can be exercised over them by the body at large. The great success and rapid growth of the system prove, however, that these difficulties are, in some tolerable degree, overcome. At all events, if the beneficial tendency of the competition of retailers in promoting cheapness is foregone, and has to be replaced by other securities, the mischievous tendency of the same competition in deteriorating quality is at any rate got rid of; and the prosperity of the co÷perative stores shows that this benefit is obtained not only without detriment to cheapness, but with great advantage to it, since the profits of the concerns enable them to return to the consumers a large percentage on the price of every article supplied to them. So far, therefore, as this class of evils is concerned, an effectual remedy is already in operation, which, though suggested by and partly grounded on socialistic principles, is consistent with the existing constitution of property.

With regard to those greater and more conspicuous economical frauds, or malpractices equivalent to frauds, of which so many deplorable cases have become notorious---committed by merchants and bankers between themselves or between them and those who have trusted them with money, such a remedy as above described is not available, and the only resources which the present constitution of society affords against them are a sterner reprobation by opinion, and a more efficient repression by the law. Neither of these remedies has had any approach to an effectual trial. It is on the occurrence of insolvencies that these dishonest practices usually come to light; the perpetrators take their place, not in the class of malefactors, but in that of insolvent debtors; and the laws of this and other countries were formerly so savage against simple insolvency, that by one of those reactions to which the opinions of mankind are liable, insolvents came to be regarded mainly as objects of compassion, and it seemed to be thought that the hand both of law and of public opinion could hardly press too lightly upon them. By an error in a contrary direction to the ordinary one of our law, which in the punishment of offences in general wholly neglects the question of reparation to the sufferer, our bankruptcy laws have for some time treated the recovery for creditors of what is left of their property as almost the sole object, scarcely any importance being attached to the punishment of the bankrupt for any misconduct which does not directly interfere with that primary purpose. For three or four years past there has been a slight counter-reaction, and more than one bankruptcy act has been passed, somewhat less indulgent to the bankrupt; but the primary object regarded has still been the pecuniary interest of the creditors, and criminality in the bankrupt himself, with the exception of a small number of well marked offences, gets off almost with impunity. It may be confidently affirmed, therefore, that, at least in this country, society has not exerted the power it possesses of making mercantile dishonesty dangerous to the perpetrator. On the contrary, it is a gambling trick in which all the advantage is on the side of the trickster: if the trick succeeds it makes his fortune, or preserves it; if it fails, he is at most reduced to poverty which was perhaps already impending when be determined to run the chance, and he is classed by those who have not looked closely into the matter, and even by many who have, not among the infamous but among the unfortunate. Until a more moral and rational mode of dealing with culpable insolvency has been tried and failed, commercial dishonesty cannot be ranked among evils the prevalence of which is inseparable from commercial competition.

Another point on which there is much misapprehension on the part of Socialists, as well as of Trades Unionists and other partisans of Labor against Capital, relates to the proportions in which the produce of the country is really shared and the amount of what is actually diverted from those who produce it, to enrich other persons. I forbear for the present to speak of the land, which is a subject apart. But with respect to capital employed in business, there is in the popular notions a great deal of illusion. When for instance, a capitalist invests £20,000 in his business and draws from it an income of suppose £2,000 a year, the common impression is as if he was the beneficial owner both of the £20,000 and the £2,000, while the laborers own nothing but their wages. The truth, however, is that he only obtains the two thousand pounds on condition of applying no part of the £20,000 to his own use. He has the legal control over it, and might squander it if he chose, but if he did be would not have the £2,ooo a year also. As long as he derives an income from his capital he has not the option of withholding it from the use of others. As much of his invested capital as consists of buildings, machinery and other instruments of production, is applied to production and is not applicable to the support or enjoyment of any one. What is so applicable (including what is laid out in keeping up or renewing the buildings and instruments) is paid away to laborers, forming their remuneration and their share in the division of the produce. For all personal purposes they have the capital and he has but the profits which it only yields to him on condition that the capital itself is employed in satisfying, not his own wants, but those of laborers. The proportion which the profits of capital usually bear to the capital itself (or rather to the circulating portion of it) is the ratio which the capitalist's share of the produce bears to the aggregate share of the laborers. Even as his own share a small part only belongs to him as the owner of capital. The portion of the produce which falls to capital merely as capital is measured by the interest of money, since that is all that the owner of capital obtains when he contributes nothing to production except the capital itself. Now the interest of capital in the public funds, which are considered to be the best security, is at the present prices (which have not varied much for many years) about three and one-third per cent. Even in this investment there is some little risk---risk of repudiation, risk of being obliged to sell out at a low price in some commercial crisis.

Estimating these risks at one-third per cent., the remaining three per cent., may be considered as the remuneration of capital, apart from insurance against loss. On the security of a mortgage four per cent. is generally obtained, but in this transaction there are considerably greater risks---the uncertainty of titles to land under our bad system of law the chance of having to realize the security at a great cost in law charges; and liability to delay in the receipt of the interest, even when the principal is safe. When mere money, independently of exertion yields a larger income, as it sometimes does, for example, by shares in railway or other companies, the surplus is hardly ever an equivalent for the risk of losing the whole, or part, of the capital by mismanagement, as in the case of the Brighton Railway, the dividend of which, after having been six per cent. per annum, sunk to from nothing to one and one-half per cent., and shares which had been bought at 120 could not be sold for more than 43. When money is lent at the high rates of interest one occasionally hears of, rates only given by spendthrifts and needy persons, it is because the risk of loss is so great that few who possess money can be induced to lend to them at all. So little reason is there for the outcry against ``usury'' as one of the grievous burdens of the working classes. Of the profits, therefore, which a manufacturer or other person in business obtains from his capital no more than about three per cent. can be set down to the capital itself. If he were able and willing to give up the whole of this to his laborers, who already share among them the whole of his capital as it is annually reproduced from, year to year, the addition to their weekly wages would be inconsiderable. Of what he obtains beyond three per cent. a great part is insurance against the manifold losses he is exposed to, and cannot safely be applied to his own use, but requires to be kept in reserve to cover those losses when they occur. The remainder is properly the remuneration of his skill and industry---the wages of his labor of superintendence. No doubt if he is very successful in business these wages of his are extremely liberal, and quite out of proportion to what the same skill and industry would command if offered for hire. But on the other hand he runs a worse risk than that of being out of employment: that of doing the work without earning anything by it, of having the labor and anxiety without the wages. I do not say that the drawbacks balance the privileges, or that he derives no advantage from the position that makes him a capitalist and employer of labor, instead of a skilled superintendent letting out his service to others; but the amount of his advantage must not be estimated by the great prizes alone. If we subtract from the gains of some the losses of others and deduct from the balance a fair compensation for the anxiety, skill and labor of both, grounded on the market price of skilled superintendence, what remains will be, no doubt, considerable, but yet, when compared to the entire capital of the country, annually reproduced and dispensed in wages, it is very much smaller than it appears to the popular imagination; and were the whole of it added to the share of the laborers it would make a less addition to their share than would be made by any important invention in machinery, or by the suppression of unnecessary distributers and other ``parasites of industry.'' To complete the estimate, however, of the portion of the produce of industry which goes to remunerate capital, we must not stop at the interest earned out of the produce by the capital actually employed in producing it, but must include that which is paid to the former owners of capital which has been unproductively spent and no longer exists, and is paid, of course, out of the produce of other capital. Of this nature is the interest of national debts, which is the cost a nation is burdened with for past difficulties and dangers, or for past folly or profligacy of its rulers, more or less shared by the nation itself. To this must be added the interest on the debts of land owners and other unproductive consumers; except so far as the money borrowed may have been spent in remunerative improvement of the productive powers of the land. As for landed property itself---the appropriation of the rent of land by private individuals---I reserve, as I have said, this question for discussion hereafter; for the tenure of land might be varied in any manner considered desirable: all the land might be declared the property of the State, without interfering with the right of property in anything which is the product of human labor and abstinence.

It seemed desirable to begin the discussion of the Socialist question by these remarks in abatement of Socialist exaggerations, in order that the true issues between Socialism and the existing state of society might be correctly conceived. The present system is not, as many Socialists believe, hurrying us into a state of general indigence and slavery from which only Socialism can save us. The evils and injustices suffered under the present system are great, but they are not increasing; on the contrary the general tendency is toward their slow diminution. Moreover the inequalities in the distribution of the produce between capital and labor, however they may shock the feeling of natural justice, would not by their mere equalization afford by any means so large a fund for raising the lower levels of remuneration as Socialists, and many besides Socialists, are apt to suppose. There is not any one abuse or injustice now prevailing in society by merely abolishing which, the human race would pass out of suffering into happiness, What is incumbent on us is a calm comparison between two different systems of society, with a view of determining which of them affords the greatest resources for overcoming the inevitable difficulties of life. And if we find the answer to this question more difficult and more dependent upon intellectual and moral conditions, than is usually thought, it is satisfactory to reflect that there is time before us for the question to work itself out on an experimental scale by actual trial. I believe we shall find that no other test is possible of the practicability or beneficial operation of Socialist arrangements; but that the intellectual and moral grounds of Socialism deserve the most attentive study, as affording in many cases the guiding principles of the improvements necessary, to give the present economic system of society its best chance.

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