Chapter VIII The Statics of the Problem Thus Explained

We have now obtained a clear, simple, and consistent theory of the distribution of wealth, which accords with first principles and existing facts, and which, when understood, will commend itself as self-evident.

We now have a clear, simple and consistent theory of the distribution of wealth. It agrees with first principles and with the facts as they exist, and once understood it will seem self-evident.

Before working out this theory, I have deemed it necessary to show conclusively the insufficiency of current theories; for, in thought, as in action, the majority of men do but follow their leaders, and a theory of wages which has not merely the support of the highest names, but is firmly rooted in common opinions and prejudices, will, until it has been proved untenable, prevent any other theory from being even considered, just as the theory that the earth was the center of the universe prevented any consideration of the theory that it revolves on its own axis and circles round the sun, until it was clearly shown that the apparent movements of the heavenly bodies could not be explained in accordance with the theory of the fixity of the earth.

Before working out this theory, I thought it necessary to show conclusively that the current theories fall short. In thought as in action, most men simply follow their leaders. A theory of wages that has the backing of the highest names and is also rooted in common opinions and prejudices will block any other theory from even being considered until it is proved untenable. The theory that the earth was the center of the universe did the same. It prevented any consideration of the theory that the earth turns on its axis and circles the sun, until it was clearly shown that the apparent movements of the heavenly bodies could not be explained by a fixed earth.

There is in truth a marked resemblance between the science of political economy, as at present taught, and the science of astronomy, as taught previous to the recognition of the Copernican theory. The devices by which the current political economy endeavors to explain the social phenomena that are now forcing themselves upon the attention of the civilized world may well be compared to the elaborate system of cycles and epicycles constructed by the learned to explain the celestial phenomena in a manner according with the dogmas of author220ity and the rude impressions and prejudices of the unlearned. And, just as the observations which showed that this theory of cycles and epicycles could not explain all the phenomena of the heavens cleared the way for the consideration of the simpler theory that supplanted it, so will a recognition of the inadequacy of the current theories to account for social phenomena clear the way for the consideration of a theory that will give to political economy all the simplicity and harmony which the Copernican theory gave to the science of astronomy.

Economics as it is now taught strongly resembles astronomy as it was taught before the Copernican theory was accepted. Current economics tries to explain the social phenomena now forcing themselves on the attention of the civilized world with devices that resemble the elaborate system of cycles and epicycles the learned built to explain the heavens. Those cycles and epicycles were meant to agree with the dogmas of authority220 and with the crude impressions and prejudices of the unlearned. Observations showed that the cycles and epicycles could not explain all the phenomena of the heavens. That cleared the way for considering the simpler theory that replaced them. In the same way, recognizing that the current theories cannot account for social phenomena will clear the way for a theory that gives economics all the simplicity and harmony the Copernican theory gave astronomy.

But at this point the parallel ceases. That “the fixed and steadfast earth” should be really whirling through space with inconceivable velocity is repugnant to the first apprehensions of men in every state and situation; but the truth I wish to make clear is naturally perceived, and has been recognized in the infancy of every people, being obscured only by the complexities of the civilized state, the warpings of selfish interests, and the false direction which the speculations of the learned have taken. To recognize it, we have but to come back to first principles and heed simple perceptions. Nothing can be clearer than the proposition that the failure of wages to increase with increasing productive power is due to the increase of rent.

But here the parallel ends. That “the fixed and steadfast earth” is really whirling through space at inconceivable speed offends the first impressions of people in every state and situation. The truth I want to make clear is perceived naturally and has been recognized in the infancy of every people. It is obscured only by the complexities of civilized life, the distortions of selfish interests, and the false direction taken by the speculations of the learned. To recognize it, we need only come back to first principles and heed simple perceptions. Nothing is clearer than this: wages fail to increase with increasing productive power because rent increases.

Three things unite to production—labor, capital, and land.

Three things unite in production: labor, capital and land.

Three parties divide the produce—the laborer, the capitalist, and the land owner.

Three parties divide the produce: the laborer, the capitalist and the land owner.

If, with an increase of production the laborer gets no more and the capitalist no more it is a necessary inference that the land owner reaps the whole gain.

If production increases and the laborer gets no more and the capitalist no more, we must infer that the land owner reaps the whole gain.

And the facts agree with the inference. Though neither wages nor interest anywhere increase as material progress goes on, yet the invariable accompaniment and mark of material progress is the increase of rent—the rise of land values.

And the facts agree with the inference. Neither wages nor interest increase anywhere as material progress goes on. Yet the invariable accompaniment and mark of material progress is the increase of rent, the rise of land values.

The increase of rent explains why wages and interest do not increase. The cause which gives to the land holder is the cause which denies to the laborer and capitalist. That wages and interest are higher in new than in old countries is not, as the standard economists say, because nature makes a greater return to the application of labor and capital, but because land is cheaper, and, therefore, as a smaller proportion of the return is taken by rent, labor and capital can keep for their share a larger proportion of what nature does return. It is not the total produce, but the net produce, after rent has been taken from it, that determines what can be divided as wages and interest. Hence, the rate of wages and interest is everywhere fixed, not so much by the productiveness of labor as by the value of land. Wherever the value of land is relatively low, wages and interest are relatively high; wherever land is relatively high, wages and interest are relatively low.

The increase of rent explains why wages and interest do not increase. The cause that gives to the land holder denies to the laborer and capitalist. Wages and interest are higher in new countries than in old, but not, as the standard economists say, because nature returns more for the application of labor and capital. It is because land is cheaper. Rent takes a smaller proportion of the return, so labor and capital keep a larger proportion of what nature does return. What can be divided as wages and interest depends not on the total produce but on the net produce, after rent has been taken from it. So the rate of wages and interest is fixed everywhere less by the productiveness of labor than by the value of land. Where the value of land is relatively low, wages and interest are relatively high. Where land is relatively high, wages and interest are relatively low.

If production had not passed the simple stage in which all labor is directly applied to the land and all wages are paid in its produce, the fact that when the land owner takes a larger portion the laborer must put up with a smaller portion could not be lost sight of.

Suppose production had not passed the simple stage where all labor is applied directly to the land and all wages are paid in its produce. Then we could not lose sight of the fact that when the land owner takes a larger portion, the laborer must accept a smaller one.

But the complexities of production in the civilized state, in which so great a part is borne by exchange, and so much labor is bestowed upon materials after they have been separated from the land, though they may to the unthinking disguise, do not alter the fact that all production is still the union of the two factors, land and labor, and that rent (the share of the land holder) cannot be increased except at the expense of wages (the share of the laborer) and interest (the share of capital). Just as the portion of the crop, which in the simpler forms of industrial organization the owner of agricultural land receives at the end of the harvest as his rent, lessens the amount left to the cultivator as wages and222 interest, so does the rental of land on which a manufacturing or commercial city is built lessen the amount which can be divided as wages and interest between the laborer and capital there engaged in the production and exchange of wealth.

But production in the civilized state is complex. Exchange bears so great a part of it, and so much labor is spent on materials after they have been separated from the land. This may disguise the matter from the unthinking, but it does not change the fact that all production is still the union of two factors, land and labor. Rent, the share of the land holder, cannot be increased except at the expense of wages, the share of the laborer, and interest, the share of capital. In the simpler forms of industrial organization, the owner of agricultural land receives a portion of the crop as rent at harvest, which lessens what is left to the cultivator as wages and222 interest. In the same way, the rent of the land on which a manufacturing or commercial city is built lessens what can be divided as wages and interest between the laborer and capital engaged there in producing and exchanging wealth.

In short, the value of land depending wholly upon the power which its ownership gives of appropriating wealth created by labor, the increase of land values is always at the expense of the value of labor. And, hence, that the increase of productive power does not increase wages, is because it does increase the value of land. Rent swallows up the whole gain and pauperism accompanies progress.

In short, the value of land depends wholly on the power its ownership gives to appropriate wealth created by labor. So an increase of land values always comes at the expense of the value of labor. That increased productive power does not increase wages is therefore because it does increase the value of land. Rent swallows up the whole gain, and pauperism accompanies progress.

It is unnecessary to refer to facts. They will suggest themselves to the reader. It is the general fact, observable everywhere, that as the value of land increases, so does the contrast between wealth and want appear. It is the universal fact, that where the value of land is highest, civilization exhibits the greatest luxury side by side with the most piteous destitution. To see human beings in the most abject, the most helpless and hopeless condition, you must go, not to the unfenced prairies and the log cabins of new clearings in the backwoods, where man single-handed is commencing the struggle with nature, and land is yet worth nothing, but to the great cities, where the ownership of a little patch of ground is a fortune.

We need not cite facts. They will suggest themselves to the reader. It is a general fact, seen everywhere, that as the value of land increases, so does the contrast between wealth and want. It is a universal fact that where the value of land is highest, civilization shows the greatest luxury side by side with the most pitiful destitution. To see human beings in the most abject, helpless and hopeless condition, you must not go to the unfenced prairies and the log cabins of new clearings in the backwoods. There man is starting the struggle with nature single-handed and land is still worth nothing. You must go to the great cities, where owning a little patch of ground is a fortune.