The Principles of Political Economy

Henry Sidgwick

Book III

Chapter VI


§6. In any case the Nationalisation of the Land would involve so large a transfer of private capital to public ownership that its proposal must inevitably raise the further question whether other portions of the capital of individuals should not be similarly nationalised: especially since---in recent years at least---the loudest complaint against the existing individualistic system of distribution has related to the undue share of the produce of industry supposed to be obtained by ``capital'' in its competition with ``labour''. This complaint, as usually formulated, fails to discriminate between the two elements of the yield of capital which we distinguished in Book II. under the terms ``interest'' and ``wages of management''. According to the view adopted in the present treatise, the causes that determine the amount of these two elements of ``profit'' are so fundamentally different, that it is necessary to consider the present question with regard to each separately.

As regards ``wages of management'', we certainly found reason to believe that large capitalists engaged in business obtain on the average a larger proportional remuneration for their labour than any other class of workers. As we saw, this is implied in the assumption, commonly made both by economists and by practical men, that at least an equal percentage of profit is earned by such capitalists; since the labour of management certainly does not increase in simple direct proportion to the amount of capital managed. At the same time the question how far these extra earnings are to be regarded as unfair is not one that admits of a simple and decisive answer; since---where no combination or other monopoly comes in---they must be caused by the superior productiveness of businesses on a large scale carried on by individual capitalists; and this greater productiveness, again, must be chiefly due to the keener concern and more strenuous activity which men in general shew in the management of affairs of which they have the sole control and reap the sole profit. On the other hand, since the amount of the employers' extra gains is due not to the scarcity of possible employers personally qualified and willing to perform equally productive work, but to the scarcity of persons who being thus qualified and willing are able to obtain capital, it can hardly be expected that other members of the community should acquiesce patiently in this large remuneration of the labour of capitalist employers, so far as it admits of being removed by associated action.

Hence I should refrain from condemning as unfair the efforts of labourers to reduce the profits of employers by combinations to raise wages: though, as has been already said, the principle on which such combinations proceed is one which could not conceivably be employed as a general basis for an equitable distribution of produce.

Hence, again, if any reduction in the extra earnings of capitalist employers can be effected by improvements in the management of associated capital, the resulting gain in aggregate produce tends to be accompanied by a greater approximation to equality of opportunities---at least as among owners of different amounts of capital. And from this point of view any successful and profitable extension of governmental management of industry---which we may regard as a peculiar species of associative management---would seem to be doubly desirable.

But further; we saw that it is not only the large capitalist whose services (as employer) tend to be at a scarcity price as compared with those of smaller capitalists; advantages similar in kind are possessed in various degrees by capitalists, or rather by the children of capitalists, of lower grades in the scale of wealth---including those who possess ``personal capital'' in the knowledge and skill acquired by industrial or professional training. These advantages are realized, whenever the differences in the average remuneration of different grades of labour are in excess of what would amount to ordinary interest on the additional outlay required for sustenance during an additional period of education, and for the greater cost of the education itself. Here again we may say that so far as the scarcities which cause these differences can be diminished or removed by governmental action that is socially profitable---as (e.g.) by a system of free or cheapened education, of which the cost would be repaid to the community in the increased productiveness of labour---the tendency of such action to realize greater equity in distribution may be admitted as an additional argument in its favour.

But even if such interference could be carried to the point at which there were no differences in the remuneration of different kinds of labour except such as represented ordinary interest on different outlays of capital, it might still be argued that the payment of interest at all on capital is itself a removable cause of inequality of opportunities; and that, therefore, its removal would bring about a more truly just distribution of produce. The grounds on which this has been maintained by modern Socialists are deserving of careful examination; as they have not, I think, been adequately apprehended by the individualist writers who have replied to them. It may be observed, in the first place, that if the market-rate of interest is attacked at all, from the point of view of abstract justice, there is no reason for stopping short of total abolition; it would be quite arbitrary to select any particular rate of interest as ideally more just than any other. On behalf of total abolition, the contention of the Socialist is that ``the full produce of labour ought to go to the labourer''. To this the Individualist sometimes thinks it sufficient to reply by urging the helpless state in which labour would be placed if deprived of the instruments of all kinds which constitute the main part of the real capital of the community. But this answer is not really to the point; as the Socialist can effectively rejoin that doubtless labour requires instruments, and the labour of making instruments should be remunerated as fully as any other kind of labour; but that interest is certainly not the remuneration for this labour; being in fact, as the economists of laisser faire school have been especially careful to explain, payment for what Senior and others have called the ``abstinence'' of the capitalist; or, as I have preferred to say, for the delay that he allows to intervene between the application of the labour and the consumption of its product. The real question therefore is not whether instruments ought to be made but whether it is fair that this delay involved in making them should have to be paid for. On the Individualist side it is urged with truth that Labour has gained on the whole by the delay to a far greater extent than is represented by the interest paid. But the Socialist can answer that the private ownership of what I have called ``producers'' wealth is not a necessary condition of this gain. He can urge that if the community once for all took possession of the producers' capital that is now in private hands, all future accumulations of such capital might go on just as they would do on the existing system, assuming that the community would consent to devote as much labour as at present to the production of remote utilities; so that, even supposing the present interest to be paid to the dispossessed owners of the capital already accumulated, the labourers might still divide among themselves the increment of produce continually accruing from new accumulations of capital. In short, all the `saving' required could be done without being paid for, if it were done by the community previous to the division of the produce.

It must be admitted, I think, first, that the social accumulation of instruments might conceivably be carried on by the community, and without any payment of interest; and secondly, that there is no principle of abstract equity which renders it morally obligatory to carry it on as at present, by first allowing individuals to divide up the whole produce of social industry, and then promising them future payments if they will allow a portion of their shares to take the form of fresh instruments. And if the former method of providing for the progress of industry could be trusted to work, without any counterbalancing drawbacks, the perpetuation of the inequalities of distribution that we see to be inevitably bound up with the existing system would be difficult to reconcile with our common sense of justice as I have been led to interpret it. Nor do I think that the difficulties of transition from the one system to the other, or the inevitable disappointment of expectations involved in it, would necessarily be more intense---though of course they would be indefinitely greater in extent---than those which in the course of modern history have actually attended the abolition of slavery in our colonies, of serfdom in Russia, or of oppressive feudal privileges in other European States. I do not mean to imply that the transition to Socialism is to be classed with the changes just mentioned, even if it be regarded merely as a distant stage of social progress; but I conceive that in urging the reasons for not so regarding it we have to pass---as in the case of the remedies for inequality of opportunity that we have before discussed---from the point of view of distribution to that of production. I object to Socialism not because it would divide the produce of industry badly, but because it would have so much less to divide. But when this objection is urged the controversy is necessarily shifted from the tribunal of abstract Justice to one where utilitarian or, as I have called them, ``economic'' considerations are taken as decisive.

[Back to:][PPE, Book III, Chapter 6, Section 5]  Distributive Justice
[Forward to:] [PPE, Book III, Chapter 7, Section 1]  Economic Distribution
[Up to:]
[PPE Intro and Table of Contents]