Monday, April 10, 2006



224. It remains to point out more specifically the operation of the Cost Principle upon Capital, Rent, Interest, Wages, and Machinery, with the true relations of these matters to labor Serious questions have been raised, in the recent discussions upon reform, upon all of these arriving at any satisfactory adjustment of the points at issue. It has been seen that capital or wealth already accumulated is one element in the accumulation of additional wealth, and hence it has appeared to be equitable that such capital, or rather the parties to whom such accumulated wealth pertained, should have some share in the new accumulations, in the production of which their capital has been instrumental. In other words, it has been seen that wealth loaned to and employed by another in a real benefit to that other, and the question is forcibly asked, why, then, should not the borrower, in justice, remunerate the lender to the extent of the benefit received, or, at least, to the extent of some part of that benefit? This question has never been satisfactorily answered, and can never be answered so long as value or benefit conferred, is recognized as a basis for remuneration or price. But we have seen that price rests, according to the true principles of science, wholly upon a different basis, and that benefit conferred is no ground of claim whatsoever.

225. As this distinction between the true and the false basis of price is one of the great importance to the solution of the question now about to be treated of, I shall be pardoned for stating it again, and , if possible, rendering it still more obvious. All commerce has heretofore been conducted upon the idea of an exchange of equivalent benefits. This is what has been denominated the Value Principle, which has been shown, as well by an analysis of the principle itself as by the pernicious consequences resulting from its operation, to be essentially erroneous. The basis principle of true commerce is, on the contrary, an exchange of equivalent burdens. No amount of benefit conferred by one human being upon another gives the slightest title to remuneration, provided the conferring of such benefit has cost nothing to the party conferring it. To impart pleasure, and to shed an atmosphere of happiness in every direction, is the true life of all refined and well-developed humanity. To levy tribute as a consideration for the exercise of one’s own higher nature is to profane the most sacred things. It is true that the conferring of benefits does, by a natural effect, quicken the tendency to confer benefits in return, and in this manner to produce reciprocity; but that tendency is stronger in proportion to the absence of all claim to such reciprocity. Price, relating solely to what can be appropriately claimed, has, then, no basis in benefit conferred. Hence, there is no justification whatever for interest or rent on capital in the fact that the loan of capital confers a benefit upon the borrower which he would not otherwise enjoy. Whatever basis there may be,--and we shall see, presently, that there is a basis for a price, in some cases, for the use of capital,--it is not the benefit conferred, and the price must not be measured in any manner whatsoever by the amount of that benefit.

226. Another argument is used on behalf of those who defend the participation of capital in the results of labor, with no clear distinction, apparently, between it and the one above stated, in the minds of those who employ it. It is said that, if I have property which I have accumulated by my labor, and you desire the use of it to enable you to accumulate property for yourself more rapidly than you could otherwise do, and I forgo the use of it for your sake, and to my own deprivation, that I ought to be repaid for the sacrifice that I make. This position is rigidly correct. It is merely one form of statement of the Cost Principle itself. It is a statement that the sacrifice made, the burden endured, or the repugnance overcome on the part of the party making the loan, is a basis of price. It should be said, to make the statement complete, that such is the basis, and the only basis of price, so as to exclude the mixed benefit conferred upon the other. All just price is in the nature of indemnification for damages. If no damage is incurred, no matter how enormous the benefit conferred, there can be no just price, and, if the damage be ten times the amount of the benefit, the extent of the damage is nevertheless the measure of price. Hence, the Cost Principle does not arbitrarily decide that there shall be no price for the use of capital, or even that the price shall be extremely low. It simply determines when a price is allowable, and furnishes the standard by which the legitimate amount of the price may be ascertained. It sides with neither of the combatants upon the question, as the question has heretofore been discussed, but comes in between them and points out a new line of demarcation between the right and the wrong of the matter.

227. This new line of demarcation runs with the amount of sacrifice which the owner and lender of capital undergoes in depriving himself temporarily of the use of it, no regard whatever being had to the amount of the benefit which the borrower may derive from it. Hence it follows that all surplus capital--capital which the present convenience of the owner does not require for use or consumption, and which can be entrusted to the administration of another without more risk that would be incurred by retaining it in the custody of the owner (230.)--will be open to loan, without price in the form of interest or rent. The element of risk is another ground upon which interest is defended. Just so far as augmented risk is actually incurred by loan, it is, in fact, a legitimate element of price, being part of the cost or burden imposed upon the lender. It will be shown, however, presently, that by the operation of these principles risk will be reduced to a minimum,--to those inevitable, possible contingencies which may attach to the existence of wealth as well in the hands of the owner as anywhere else. Hence all capital which is positive surplus over present necessities will be loaned,--the moral and pecuniary security being ample,--without price. (230.)

228. But then the objection arises that the real sacrifice made by the lender in depriving himself of the use of capital, as of money, for example, under the existing régime, is precisely measured by the amount of interest which can be obtained for it in the market; since by lending it without interest he is surrendering the opportunity to accumulate that amount, and hence that the new rule comes back practically to the same thing as the old one. The fallacy of this objection would be quite obvious except for the perversion of the moral sense induced by the corrupting influence of the system in which we live. As it is, it may be necessary to probe it and expose it. It can be no sacrifice, it is no burden, it costs nothing, to the honest man, to surrender the opportunity which the wants of others confer upon him to force them to give to him what he is not entitled to receive. It has been shown that his is entitled to receive nothing upon the ground of their wants, or the consequent benefit of relief which the loan will confer. The argument is this: I recognize that, in a transaction which I am about to have with you, the limits of my just demand against you are the same as those of the amounts and claims which I am about to surrender; but then I find that among other things I am about to surrender an opportunity which circumstance have placed in my power to cheat you out of a thousand pounds, and I wish thereupon to augment my demand by that amount. Do you not perceive that I immediately forfeit all title to the appellation of an honest man?

229. Risk is stated by all writers on the subject as one of the grounds on which Interest or Rent on Capital rests, and I have admitted that it is a good ground of price just so far as the risk is augmented by the loan. Even in the existing order of society, however, it frequently happens that capital invested in the hands of another party is rendered quite as secure as it would be in the custody of the owner. It is possible, by bond and mortgage on real estate, for example, with an ample margin of value, to render the risk positively less than would be incurred by the owner in hoarding his wealth in his own strong box, or entrusting it to his banker. The risks of losing property are in some respects the same whether the owner retains it himself or permits it to go out of his hands; in other respects the risk is greatly enhanced, in the present state of things, by ceasing to guard it personally. Some risks, from the accidents of nature, are perhaps such that they can never be foreseen and guarded against by any arrangements whatever, let the property be where it may. These, if there are such, make no basis of interest or rent on the capital when loaned, as it is a cost which the owner of the property must endure in any event. Other risks, dependent on the accidents of nature, are capable of being estimated with sufficient precision to be covered by insurance. Those risks again furnish no basis of interest or rent to be charged on the borrower, unless the property is going to be employed in a more hazardous way. If so, the augmented rate of insurance falls equitably upon the borrower, and marks precisely the extent to which this element is the basis of price. Finally, risks are incurred, now, by the chances of speculation which attend nearly every use of capital, and by the prevailing habits of dishonesty which grow out of speculation, the want of any known standard of honesty, the general prevalence of poverty, distress, and commercial revulsions, together with the consequent want of security of condition,--in other words, out of the want of any knowledge in the public mind of what honesty is, and the want of such conditions of the individual as render honesty possible. Under the operation of the Cost Principle speculation is extinguished, and the dishonesty which grows out of that root is extinguished along with it. Poverty, pecuniary distress, and commercial evulsions will cease, and a general security of condition will be achieved; and along with these changes will cease the temptations and constraint of circumstances, which force men now into dishonest practices, against the protest of their consciences, and to the absolute loathing of the real man within. An exact standard of honesty will exist in the mind of everyone. Public sentiment will become as stringent in relation to the right and wrong of every commercial transaction as it is now in regard to bribe-taking and perjury; and, finally, every man, woman, and child will be a banker, with a reputation to preserve untarnished, as the sole condition of enjoying merely commercial advantages and facilities, worth more than the most unlimited credit in the existing order of commercial affairs. Dishonesty, therefore, will cease along with the cessation of speculation or profit-making, and with the inauguration of these new principles of society. It is fruit which grows upon the tree which is now cultivated, not upon that which we are proposing to plant.

230. It follows from these considerations that all that class of risks,--now by far the most considerable,--which arise out of the contingencies of speculative commerce and the prevalent dishonestly of commercial nations appear as soon as true principles are in operation. Hence they cease to be taken into account as a basis of interest or rent of capital. The lender lends with entire confidence, resting upon the security of the property loaned,--which will remain in some form always on hand to meet his demand,--the actual risks from the accidents of nature being covered, so far as practicable, by insurance. He recognizes in principle that his capital earns nothing: hence, if it is surplus with him,--that is, if he desires to make no other present use of it than merely to preserve it,--it becomes at first immaterial to him whether it remains in his own custody or in the custody of a friend, while, in the second place, it is a relief to him to be freed from its administration in the intermediate time; and, finally, he will be, along with all the rest of the community, a participant in the benefits which will result to the whole public from having it occupied in any enterprise conducted upon the Cost Principle, Hence again it follows, as stated in the preceding chapter (222.), that “whoever evinces the highest grades of inventing and organizing talent will have the command, freely, of the requisite capital to aid the execution of his designs, limited only by the aggregate amount of surplus capital in the community, as compared with the number of such beneficent enterprises on foot.”

231. It is nevertheless true that under the operation of these principles there are circumstances in which the use of capital is fairly a matter of price. Such is the case whenever the capital loaned is not a surplus above present needs, and when, consequently, to make the loan at all is to postpone one’s own present enjoyment, and hence to endure a sacrifice,--to assume cost. It is the same with labor done for another at a time when it is an inconvenience to perform it. To render this distinction, and also the difference between the operation of true principles and of the present false principles, more obvious, let us assume an illustrative case.

Suppose twenty families of emigrants landing in Oregon. All need houses forthwith. But houses for all cannot be built at once. It is assumed, now, that it is morally and economically right that those who are willing to give the largest amount of their present wealth or future labor for the assistance of the others should have their houses built first, that the enhancement of price in consideration of credit is in the nature of interest, and hence that interest is right.

The answer is this: Cost has its positive and negative aspect. It includes, 1. Active performance of painful labor; 2. Passive suffering, sacrifice, deprivation, or endurance. Under this second head I legitimately charge a price for the surrender of the use of capital (my labor being also capital), at any time when it would be really advantageous to me to use it for myself; but the exact measure of the price of such surrender is the amount of that sacrifice,--not the amount of the benefit which I shall confer on another by making it. It is legitimate that the party who postpones building at a sacrifice to himself for the accommodation of another shall charge an enhanced price. So far we seem to go toward admitting the basis of interest, which is assumed. This enhancement of price is entirely different, however, from interest on money, as now in use. Such as it is, it is not only entirely harmonious with, but is absolutely demanded by, the Cost Principle, the foundation of the charge being the cost of pain endured.

232. You are right in assuming that, in the case put, an enhanced price should be charged. You are wrong in assuming that the measure of that enhanced price is the amount of present wealth or future labor which the several parties are respectively willing to give to obtain the accommodation. Those parties will be willing to give most who stand in want of shelter; in other words, those who suffer most from being unhoused; in other words, again, the weak and feeble, the invalid, the unprotected women and children. They are willing to give or promise most, because their wants are greatest; in other words, because the value to them of comfortable shelter is greater than it is to the robust and enduring. This, then, is the value principle, or the supply-and-demand principle, as it is sometimes called,--the false principle of commerce which now prevails,--the antipodes of the Cost Principle,--the true principle of commerce, which will prevail under the reign of Equity.

233. Let us see now the application of the Cost Principle to the case in hand. An enhanced price is to be charged by those who postpone their own accommodation, but that enhancement is measured by the amount of sacrifice or inconvenience suffered. Consequently the stronger, the healthy, and those most accustomed to hardships, will postpone their own accommodation for less augmentation of price than others, and the weak and suffering will be housed first, as they out to be morally, and at the cheapest rate, as the ought to be economically. A false principle always puts on the guise of a true principle. Hence, both the Value Principle and the Cost Principle promise the same thing, and will begin by building the houses of those who are in the greatest want first; but the Value Principle robs the weak for whom it builds, during the process, and then builds more magnificently for the strong, making hewers of wood and drawers of water of water of the weak for ever afterward. It is again seen, therefore, that the Value, or Supply-and-Demand Principle is the essential element of the civilized cannibalism which now prevails, and the Cost Principle the essential element of true or harmonic relations among men.

234. There is still another ground upon which a defense of interest is set up. It is said that trees grow, or, in other words, that property has a natural tendency to increase, and hence that a smaller amount of property in hand now is, upon natural principles, worth as much as a larger amount to come into possession one, two, or three years hence, and hence, again, that I ought to receive more in payment of a debt which is postponed, which is again in the nature of interest.

It has been stated that, in the case of a real inconvenience occasioned by a delay, a price is equitably paid. That admission does not, however, affect the case now put. Cases must be distinguished. It is not true that all wealth increases naturally by time. Some does so, while other kinds deteriorate. Let us apply the principle, however, to the case of an actual increase. It is a consequence of the Cost Principle that natural wealth bears no price; consequently the increase of natural wealth bears no increased price. For example: if cattle increase naturally upon the open prairie, and no human labor is bestowed upon their care, they are the common wealth of all mankind. If a given amount of labor is bestowed upon the care of a drove of one hundred, that amount of labor, or its equivalent, is the legitimate price of the drove. If, then, a drove of one hundred and fifty can be cared for just as well by the same labor, the legitimate price of the larger drove will be precisely the same as that of the smaller, for not value but cost is the limit of price. Hence, under the operation of the Cost Principle, there is no sacrifice to me in postponing the receipt of property due to me on the ground of its prospective natural increase, for, if there is no human labor added to produce the increase, the price remains the same, and I can at the future day purchase the larger quantity at the same rate as I should now give for the smaller. And again, if human labor contributes to the increase, then it is not natural or spontaneous increase, and there will be an augmentation of price; but in that case the augmentation will be merely a precise equivalent of human labor so bestowed, so that it becomes entirely indifferent with me whether I have the property now in possession and bestow upon it the necessary labor myself, or whether it remains in the possession of another, who bestows the labor, and to whom, at the expiration of the term, I give merely an equivalent,--that is, an equal amount of labor in some other form. Hence, while there is, under the auspices of the Value Principle, which now governs property relations and apparent sacrifice from the postponement of payment on the ground of natural increase, there is no ground of sacrifice, and consequently no basis for interest, under the Cost Principle.

235. I anticipate an objection like this. What is said here of natural wealth supposes an abundance of that species of wealth. What is said of the cattle on the prairie may be all right if there are enough cattle for all. But so soon as a scarcity occurs, will anyone who has possession of a drove divide with others for a due proportion of the labor he has bestowed upon it?

This is a mere question as to what men will do under the pressure of temptation to do wrong. It is clear that the only right the individual has to the drove more than others results from the labor he has bestowed upon it. That makes it his property. He can refuse to dispose of it if he requires it for his own use. If he does dispose of it, the just measure of price is the amount of labor bestowed. As he cannot augment that price, if he acts justly, by retaining it while pressed by the wants of others to dispose of it, the temptation to retain more than he requires for his own wants is removed. There is no motive left to act against his humanity, and, as humanity is an element in the nature of every man, it will of course act to induce him to dispose of what he can spare.

236. Still the objection is not fully answered without this additional statement. It is easy to act upon the true principle,--that is, there is less temptation to deviate from it,--just in proportion to the prevalence of general abundance and the complete adaptation of supply to demand; but, on the other hand, the greater prevalence of abundance and a more perfect adaptation of supply to demand grow directly out of the adoption of the principle. The exercise of the principle will create the atmosphere in which it can itself live with a more and more perfect life. A false principle now prevents the development and proper distribution of wealth. It is no impeachment of the true principle that, under the pressure of want created by the false one, there is a strong temptation to act in turn upon the false instead of the true one.

237. It will be seen, then, that although the Cost Principle allows sometimes of an augmentation of price on the ground of delay of payment, such augmentation is quite different from interest on money, as now understood. It is, nevertheless, the spice of truth contained in the proposition that delay is a sacrifice which gives plausibility to this argument for interest.

238. Interest differs from any such augmentation of price: 1. Because it relates to the value of benefit of the accommodation to the receiver, and not to the sacrifice or cost to the grantor. 2. Because it goes by rule, and, even when it professes to be based on cost, does not individualize the cases of real sacrifice, apparent sacrifice, and no sacrifice. 3. Because it claims to be based, in part, on the natural increase of wealth, whereas all natural wealth, and consequently the increase of natural wealth, is no legitimate basis of price whatsoever.

Everyone must admit the essential justice of the Cost Principle in its primary statement,--namely, that as much burden as you take for my sake so much am I bound to take for your sake. The logical consequences of that admission sweep all interest out of existence, so far as interest is an admission of the right of capital to accumulate more capital, and vindicate the claim of all mankind to the equal enjoyment of every species of natural wealth.

239. The reader must distinguish well between capital itself, and the capacity of capital of itself to make additional accumulations. The Cost Principle makes no attack upon capital. It recognizes capital as the legitimate accumulations of labor It simply denies that capital itself has any legitimate power, when not used by the owner, to accumulate more capital for him. But what, cries the fat citizen who lives on his rents and whose ideas are steeped in the actual routine of commerce, what is the use of capital which produces no income? It is of use, my good friend, simply for the purpose of being used. It is of use in the same manner, and for the same purpose, as honey accumulated in the hive is of use to the bees. Honey is made for the purpose of being consumed. From the time the bees cease to work, their store of wealth, ceasing to augment, begins to decrease. No contrivance has ever been hit upon among them by which the honey itself should go on making more honey after the bees retire from business. Hence, among bees, the rich do not become richer, nor the poor poorer, except in proportion as they work and eat. Under the operation of the true principles of industry and commerce the same will be true of mankind. Accumulations of wealth will be an object of ambition then, as now, because, so long as they last, they will exempt the owner from toil, if he chooses to be exempt. The man who has wealth will be in the condition of a man who has done his work. He can acquire wealth through his own labor, or through donations, bequests, or inheritance from friends. His capital will be invested in houses, shops, machinery, improvements upon lands, the Labor Notes of others, in everything, in fact, which is legitimately property, precisely as now; but such investments will bring him no rents, profits, or interest, as an augmentation of his capital. Whatever he withdraws, converts into a consumable shape, and consumes, will be so far a diminution of his capital stock, as it will be obvious to every candid mind that it should.

240. Let us look a little more specifically into this operation of the principle, as relates to the rent of lands and houses, the use of machinery, and the like. We have already noticed the effect as relates to the price of land when sold. (82.) On the same grounds there stated, and elsewhere illustrated, the rent of lands is nothing, provided they are maintained in as good a condition, in all respects, as that in which they were when received by him who hires them. If the owner maintains them in that condition, manuring them, fencing them, etc., then the rent is the equivalent of the cost of doing so. If the hirer puts the lands in a better condition than they were in when he received them, the price is due from the owner and renter of the lands to him, inverting the present order of payment, and is measured by the cost of such augmentation of value. So, if the owner sells the lands, it will be remembered that the price is the cost of the successive augmentations of value upon the soil since the land was in its natural state, and which still remain with it. Hence it follows that not only is all speculation on land extinguished, but along with it all temptation to monopolize the soil. There is no advantage in owning land which one does not want for his present uses, except this,--that one my foresee the probability of his requiring a particular lot for his subsequent private occupation, and may, for that reason, desire to retain the control of it, or rather the right which ownership confers to resume the control of it at a future time. The ownership of the disposable improvements or augmented value upon the soil may also be as convenient an investment for one’s surplus wealth as any other, since that can at any time be converted, by sale, into consumable property, to supply his wants. On the other hand, there is no advantage on the part of him who cultivates land in owning the land over hiring it of another, except in the permanency of his tenure. As a mere tenant, he may be required to remove at the expiration of his term for the convenience of another, but, so far as the profitableness of his occupancy is concerned, it is precisely the same whether he owns or hires.

241. As relates to the hiring of houses and structures of all sorts, the operation of the principle is the same. The rent is a mere equivalent of cost to the wear and tear of the premises. If the tenant keeps them in thorough repair, so that there is no depreciation of value, the rent is zero. If on the other hand, the deterioration is suffered to go on, the annual amount of that deterioration, as averaged upon the term which the property may last, is the annual rent, so that when the property is worn out the owner will have received a full equivalent for it, and have kept his capital good by other investments, or have consumed it by supply his own wants. Suppose, for example, a house upon a money calculation (all such calculations will be finally resolved into hours of labor or pounds of corn) costs ten thousand dollars, and is estimated to be capable of lasting two hundred years; the annual rent of it will then be fifty dollars per annum. The owner of such a building will then have an annual income of fifty dollars per annum in addition to his earnings from his own labor, which he will consume if he chooses, and at the expiration of the term of two hundred years the whole will be exhausted. If he owns such a property, and wishes to consume it more rapidly, he can sell it to such persons as wish to preserve their capital, and use up the proceeds. It follows that the more permanent the structure the less the rent, so that buildings capable of defying the inroads of time,--stone structures and the like, for example,--will command no rent at all. Still this is perfectly harmonious, since such edifices are a safe means of investing capital, which really earns nothing let it be invested where it may, and which can be reconverted at any time into consumable property by sale. Where capital earns nothing, selling is just as advantageous as renting, since renting is really selling piecemeal instead of in the gross. Hence, under those circumstances, it is no objection to the purchaser who has capital to invest that the stone house will bring no rent.

242. But it may be objected that, if persons were able to hire stone houses free of rent, they would not hire others of more perishable material. Clearly not, if there were enough of the more permanent ones to supply the demand. If there were nearly enough, the less permanent and consequently more expensive ones would be less rentable and less salable, and would therefore offer a less secure investment for the capitalist. Hence, again, the tendency of this operation of the principle is to force the capitalist to build indestructible edifices, and, finally, to house the whole population free of rent? Is that consummation to be deplored? But at that point, urges the objector, houses cease to be salable; hence they cease to be property convertible into consumable products, and there will no longer be any motive with the possessor of surplus wealth to construct houses at all. Precisely so. But that point is just the point at which all the houses that are required by the whole people have been already built. Is there any calamity in ceasing to provide a supply when there is no longer any demand? It will be high time, then, that surplus capital shall be invested in other provisions for human wants, in loans to genius for the working out of new designs, and the like. There need be no fear, with the ever-rising scale of luxury and refinement, that there will occur any glut of the aggregate demand for such surplus accumulations.

243. The operation of the principle is again the same with reverence to machinery, and hence the Cost Principle settles triumphantly, as nothing else can, this, the most vexatious question perhaps of modern economical science. The machine earns nothing. The capital invested in it is merely kept good for the owner. The dividend due to the machine is solely the wear and tear of the machine. Hence machinery ceases to work against the laborer, and begins to work exclusively for him. Every member of community comes at once to participate equally in all the advantages of every labor-saving process. Wealth has no longer any monopoly of those advantages. Cost being the limit of price, the price of every product is reduced to every purchaser by just as much as the cost of its production is diminished by the aid of machinery. Hence machinery, like competition, now the enemy of the laborer, will be converted into his co-operating servant and most efficient benefactor.(159,163,208.)

244. I must not omit, before closing this chapter, to notice the remaining ground upon which the habit of paying interest on money, and consequently rent on capital, now rests, and along with it the power of capital over labor,--namely, the scarcity and expensiveness of the circulating medium hitherto in use. There is not enough of the so-called precious metals to serve the purposes of commerce as a proper medium of exchange, there intrinsic value and insufficient supply making them the subjects of monopoly in the hands of the money-dealers. This point has been already adverted to, and the remedy shown to be the substitution of the Labor Note.(77.)

245. It will be appropriate now also to say a few words in relation to the capacity of the individual Labor Note to expand into a general system of currency. As that capacity depends somewhat upon the prevalence of confidence consequent upon a general habit of honesty in the community, it could not be so favorably presented until the power of the Cost Principle in operation, to engender that habit, had been previously shown.

246. In every small community in which the Labor Note is used, there will be very soon some one individual whose notes will come more into use than those of others,--the storekeeper, for example, in the village. It will be safe for him to issue Labor Notes to any extent which he can redeem in his own labor, in goods from his shelves, or in the Labor Notes of others. His business will bring him continually into possession of the Labor Notes of all his customers,--at first only in payment for his own labor in serving them,--the cash cost of the goods being paid in cash,--but, finally, with the extension of the system which we are now supposing, for the original cost of the goods as well. Having these notes in possession, it will be the same thing whether he puts them in circulation, or whether he puts his own notes in circulation for an equal amount and retains those of his customers as the means of redemption. Convenience will be in favor of the latter method, so far as it shall be found in practice to be safe; which will be in proportion to the growth of the general habit of honesty; which will be again in exact proportion to the general adoption of the Cost Principle as the governing principle of commerce. Wherever the honesty of the storekeeper can be entirely relied upon, guarded as it will be by the usage of keeping his books entirely open at all times to the inspection of the public, the practice may grow up of each inhabitant of the village exchanging Labor Notes with him for as much currency as he requires for his own use, and issuing the notes of the storekeeper instead of his own. In this manner the storekeeper becomes the village banker, and makes out and signs all the currency in use in his neighborhood, and, as the doing so becomes a burden, charges the cost upon every issue. By this means the detail of each person’s signing and issuing his own notes will be finally avoided, and the banking of the village surrendered into the hands of one person. Every movement should begin, however, for safety, in general individual banking, much in the same manner as it will be found expedient and cheaper in practice, in the early stages of experiment under the Cost Principle, to go back to the manufacture by hand of many articles which are manufactured outside by the aid of machinery, and intrinsically, of course, at a much cheaper rate.

247. The system of banking in Labor Notes by the wholesale, or by one individual for a village, neighborhood or other community, thus begun, may be extended to the larger towns, and finally to the cities. In the large towns and cities, instead of the business being a mere appendage to the store or post office, it will become an independent branch of business by itself,--the banker issuing his own notes against those of smaller country bankers held in deposit, as theirs in turn are issued against those of a still smaller class deposited with them, and these again finally against the primary notes of the citizens generally. The notes of the metropolitan bankers will then become a national currency, issued without interest, to the whole community, and at no expanse beyond the cost of the mere labor involved in each exchange or issue.

248. It is obvious that such a system of banking is only adapted to a state of society in which there is a high state of confidence in individual good faith. It will be equally obvious, however, to every reader who has rightly apprehended the drift of this treatise, that such a condition of society will be the legitimate result of the application of right principles. It will be alike obvious to everyone who reflects that no true order of society can exist,--the problem to be worked out,--while bad faith and general dishonesty remains. The system of currency here slightly developed is adapted to society expurgated of those elements. Its benefits are immense. The fact that we cannot participate in them now may serve to remind us of the sacrifice we incur by adhering to principles which beget mutual overreaching and bad faith as their legitimate progeny.

249. We come, finally, to the consideration of the much-abused “Wages System.” To escape which Social Reformers of all schools have proposed rushing into combinations of interest of some sort, to the destruction, as we have seen, of individual sovereignty and freedom. The concrete of our existing labor and commercial arrangements is felt to be disharmonic and oppressive; hence every feature of it is liable to be denounced in turn, in the absence of corrective scientific discrimination between what is fundamentally right and wrong in the system. It is in consequence of this liability that Individuality has fallen into disrepute among Reformers, as if in it were the essential element of discord, whereas it has been shown that Individuality is the sole basis of all harmonic adjustment. In like manner the relation of employer and employed is stigmatized daily as vicious in itself, and the ideal is entertained of each individual being so employed as to be his own “boss,” to use the language of the trades, and to work solely for himself. No such arrangement is either desirable or feasible. It is not all men who are made for designers, contrivers, and directors. That is perhaps one of the most exact generalizations of mankind into classes by which they are divided into Originators, Organizers, and Executors. The first are least numerous, the second more numerous, and the last most numerous. It is right that those who originate should impress themselves on the execution of their designs, either directly, or through the intervention of the organizing class. Naturally each is content with the performance of his own function, according to this organization. The few only will desire to lead; the mass of mankind will prefer to follow, so soon as an equality of rewards renders it alike honorable either to follow or lead.

250. It is, then, a natural relation that one man should employ another to aid him in actualizing his design; that he who has a design to execute should adjoin to himself the labor of him who has none, or no other one than that of securing the means of his own subsistence in circumstances of personal comfort. For that purpose,--the execution of the design,--they two enter into a combination, while in interest they are still individual and distinct,--the interest of one being in his design, and that of the other in the wages he is to earn. But every combined movement demands an individual lead. Hence, in the execution of the design, the one must guide and the other follow, and the more absolute the submission of the one mind to the other, the more harmonious the movement. Hence, it is proper and right that one man should hire another, and, if he hires him, it is proper and right that he should remunerate him for his labor, and such remuneration is wages. Hence, it follows that the “Wages System” is essentially proper and right. It is right that one man employ another, it is right that he pay him wages, and it is right that he direct him absolutely, arbitrarily, if you will, in the performance of his labor, while, on the other hand, it is the business of him who is employed implicitly to obey,--that is, to surrender all will of his own in relation to a design not his own, and to conceive and execute the will of the other.

251. The wrong of our existing system is not, then, to be sought in Individualism, it is not to be sought in the want of Co-operation, except as that grows to some extent out of the want of Equity, nor is it to be sought in the relation of employer and employed. It is right that the great manufacturer should plan, and either alone, or through the aid of assistants under his direction, organize his mammoth establishment. It is right that he should employ and direct his hundred or his five hundred men. It is not true that those men do not even now co-operate with each other and with him, as it is right and proper that they should. (52.) It is right that he should pay them wages for their work. It is not in any, nor in all of these features combined, that the wrong of our present system is to be sought for and found. It is in the simple failure to do Equity. It is not that men are employed and paid, but that they are not paid justly, and that no measure of Justice or Equity has ever heretofore been known among men.

252. When all avenues are alike open to you and me, there is no hardship in the fact that I, having no genius for great enterprises, or preferring to avoid the responsible charge of them, choose freely to labor under your direction for the execution of your designs. It is great hardship, however, if I am first forced into that position by a system of labor and wealth which leaves me no election, and then robbed, by the operation of the same system, of one-half or two-thirds of my earnings, for your benefit. In the large establishment, such as we are now contemplating, conducted on the Cost Principle, the proprietor will realize no more in the form of pecuniary results from the undertaking than the humblest laborer employed by him, unless he works harder, and not so much if he does not work so hard,--taking into account all the elements of labor or repugnance, both physical and mental.

253. But who, if the temptations of profit-making were removed, would assume the responsibility and burden of devising, organizing, and conducting an extensive and complicated business concern? The question is thoughtlessly asked, and dictated by the control which old associations have over the mind. In the first place, the burden and responsibility, precisely such as they are, more or less, to the individual who thus assumes a leading position, as compared with the disagreeableness of other occupations as estimated by himself solely, are the limit of the reward of his function. The greater the burden the greater the price. The Cost Principle does not pronounce, arbitrarily, that the conductor of the large and complicated business shall be paid a very low price for his labor It merely decides that he shall be paid according to the relative degree of repugnance of that kind of occupation, as judged of by himself,--subject to no other checks than those which are supplied by his own conscience, and the competition of others who may deem it less repugnant than he. Hence, if that kind of occupation actually imposes an intrinsic burden ten times or one hundred times a great as mere executive labor, then the principle accompanies us quite out to that point, and gives to him who serves in that capacity ten or one hundred times as much price as to the ordinary laborer The principle hold good wherever it conducts; but the result will be, in fact, far otherwise. There are men who are organized for the lead of large and complicated enterprises, to whom positions demanding great powers of mental combination, and devolving heavy responsibilities, are the most attractive. By such, such positions will be filled at a pecuniary price less rather than more than will be awarded to labors less flattering to the tastes and to the ambition for leading and responsible posts.

254. There is a class of Communist Reformers to whom this whole discussion relating to price will be distasteful. They wish to be rid of price altogether. They aspire to arrive, by a short cut, at a condition of society in which labor shall be solely according to attractions, and supply only measured by the wants of the individual. That ideal has in it, doubtless, a partial prophecy of the truth. It is, however, like the point of no friction in machinery,--a point always to be aimed at, and continually approximated, but never absolutely attained. The tendency to a modified practical communism will develop itself in proportion to the relaxation of the hold of the individual upon private property or possession, which will be again in proportion to the prevalence of general abundance. The effect of the Cost Principle will be to augment the general wealth by means of the Economies, Attractive Industry, and a more perfect Co-operation; hence the tendency of the Cost Principle, in operation, will be toward the extinguishing of all price. Price being according to repugnance, it will constantly decrease with the more attractive conditions of industry until, if the point be ever attained at which all labor shall be done from pure attraction, price will cease altogether. Hence, in so far as the Communist has faith in the possibility of attaining the conditions, may he have faith in that result. The Cost Principle begins with us, then, in the midst of repugnant labor as it now is, and does Equity there. It accompanies us with the decrease of repugnance and renders the price less, and finally it attends us quite out to the ideal point of pure attraction and the cessation of all price. It is the mistake of the Communist to assume that the goal has been attained, or that it is possible to attain it by any sudden leap, avoiding the intermediate steps.

255. Still it is important to observe that the absence of price is not the absence of ownership, which last in confusion. Hence, the Cost Principle never lands in Communism in that sense. All property will still belong to individual owners, who will exercise absolute rights over it,--as an essential condition of order,--even though a price be not demanded. Take an illustration. A drink of water, a pin, or a wafer is not now ordinarily a subject of price, as articles of more considerable value will not be with greater abundance, and still they belong to individual owners. You will take a wafer from my desk without even consulting me. It is not worth my while to assert my ownership. But if on doing so repeatedly you render yourself offensive by puffing tobacco smoke in my face, or otherwise, I fall back upon my right of property, and refuse you the accommodation.

256. In conclusion, it will strike the judicious reader that the Cost Principle is wonderfully searching, subtle, and exact; that it marks the line with precision between what is right and what is wrong in the present system, and between what is right and what is wrong in all the proposed systems of Social Reform; that it is eclectic and discriminating; that it combines, in fine, the simplicity of fundamental truth in its primary statement with that minuteness of application to the most ramified details which entitle it to the appellation of a Universal Principle.


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