G. D. H. Cole: Selected Works, 10-Volume Set 9780415566513, 9780203839317, 9780415597265, 9780203839614

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EARLY PAMPHLETS AND ASSESSMENT With a new introduction by Noel Thompson

G. D. H. COLE: SELECTED WORKS

G. D. H. COLE: SELECTED WORKS

EARLY PAMPHLETS AND ASSESSMENT

EARLY PAMPHLETS AND ASSESSMENT

With a new introduction by NOELTHOMPSON

39Q31inOU

Volume 1

Routledge Taylor &. Francis Group

LONDON AND NEW YORK

Pamphlets first published between 1921 and 1956 This edition first published in 2011 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Avenue, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group, an informa business © Pamphlets 1921, 1932, 1943, 1944, 1948, 1951, 1952, 1954, 1956 H A Cole © New introduction 2011 Noel Thompson Printed and bound in Great Britain All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 13: 978-0-415-56651-3 (Set) eISBN 13: 978-0-203-83931-7 (Set) ISBN 13: 978-0-415-59726-5 (Volume 1) eISBN 13: 978-0-203-83961-4 (Volume 1) Publisher’s Note The publisher has gone to great lengths to ensure the quality of this reprint but points out that some imperfections in the original copies may be apparent. Disclaimer The publisher has made every effort to trace copyright holders and would welcome correspondence from those they have been unable to trace.

An Introduction to the Selected Works of G.D.H. Cole Guild socialism George Douglas Howard Cole was born in Cambridge on 25 September 1889, the son of a jeweller, who subsequently moved to Ealing and became a surveyor. In his own words he ‘became a socialist as a schoolboy a year before the general election of 1906...converted quite simply by reading William Morris’s News from Nowhere which made me feel suddenly and irrevocably, that there was nothing except a socialist that it was possible for me to be...I became a socialist as many others did in those days on grounds of morals, decency and aesthetic sensibility.’1 In 1908 he went to Balliol College Oxford to read classical history and philosophy, before being elected to a fellowship at Magdalen College in 1912 and focusing on the study of economic and political thought. During his time as an undergraduate he became involved in political activities through his membership of the Fabian Society and the I.L.P., ‘agitating for the Workers’ Educational Association, to which he was to make a lifelong contribution, and editing the Oxford Reformer.2 The period between Cole’s embrace of socialism and the publication of his first major work, The World of Labour, 1913, 3 was one of declining real wages, an aggregation of capitalist power by way of a concentration of industrial ownership, growing threats to the status of skilled sections of workforces, in consequence of skill-destroying technical change, a growth of industrial unrest and a rise in trade union membership which tripled between 1888 and 1910. Moreover this period saw both the emergence of new national unions and the growth of inter-union co-operation culminating in the Triple Alliance of the railway workers, miners and transport workers in 1914. In such circumstances it is unsurprising that there emerged, both in Britain and elsewhere, socialist political economies that looked to a decentralised socialism brought into being by the efforts of the workers themselves rather than by the prior conquest of state power. All the more so, as the political route was one that seemed to have signally failed to advance the cause of the working class, despite the emergence of the Labour Party and its electoral success in securing 29 M.P.s in the 1906 election. Syndicalism was one manifestation of this antipathy to the political road to socialism, with its emphasis on industrial struggle as the essential means of vesting ownership and economic decision-making power in the hands of the producers. Its influence was most potent in continental Europe, particularly France and the United States,4 but it was also felt in Britain. James Connolly,

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for example, was influenced by the work of Daniel de Leon during a period he spent in the United States and was effective in spreading syndicalist ideas through organizations such as the Socialist Labour Party. Tom Mann, who established a paper, the Industrial Syndicalist, in 1910, and a year later, the Industrial Syndicalist Education League, also played an important role in disseminating syndicalist ideas within the British labour movement in the period prior to the outbreak of the Great War; a period which saw both an unparalleled wave of industrial unrest and the growth of rank and file movements challenging trade union hierarchies. It was indeed one such group, the Unofficial Reform Committee of the South Wales Miners’ Federation, which produced a classic text of British syndicalism - The Miners’ Next Step, published in Tonypandy in 1912.5 More importantly, in terms of its impact, the decade prior to the outbreak of the Great War also saw the emergence of guild socialism. A.J. Penty’s Restoration of the Gild System, 1906, had articulated many of the elements of this. There was the setting of the producer centre stage, with the concomitant rejection of the notion ‘that government should be conducted solely in the interests of man in his capacity as consumer.’6 There was a focus on creative and fulfilling labour as the essential objective of any transformation of society. There was the rejection of the use of state power as a means of achieving this, and an emphasis rather on producer guilds as the motive force of social transformation; these guilds, like their medieval counterparts, were to regulate their trade, assume responsibility for the quality of what was produced, the price at which it was sold and the remuneration and social status of its members. Penty’s work was, though, tinged with an atavistic medievalism and imbued with an antipathy to commercialism, international trade and mechanised mass production, that often spilled over into a more general antipathy to industrialism and all its works. It was, therefore, S.G Hobson’s National Guilds, an Inquiry into the Wage System and the Way Out, 1914, based on a series of articles in A.R. Orage’s, The New Age, 1912, that precipitated the emergence of a guild socialism applicable to an industrial civilization: a guild socialism that in condemning the commoditisation of labour inherent in the wage system, also rejected that collectivism which threatened to replicate it in an economy characterised by extensive public ownership. Thus what Fabian socialists proposed would merely replace private capitalism with state capitalism, with the decisionmaking and controlling authority retained by the manager or bureaucrat. Fabian collectivism failed to extend the application of democratic principles to industry, while the Fabian attitude to democracy was ‘arrogant and supercilious’ and inimical to the concept of an active and informed citizenry which Hobson saw as integral to socialism.7 Guild socialism alone could effect the destruction of the wage system and ‘trade unions’ would be both the means of its destruction and ‘the natural nuclei of future industrial organisation’.8 To achieve this Hobson looked to the widest possible extension of the trade union movement and the unification

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of its fragmented structure into a number of powerful industrial unions. Such unions would ‘make tireless and unrelenting inroads upon rent and interest’, press for the co-management of industries to erode the power of existing managers and owners and so lay the basis for the transfer of that power to the guilds.9 Guilds would, in Hobson’s view, assume responsibility for all aspects of the organisation of production and ‘instead of the State...for the material welfare of its members’.10 That said ownership of the means of production should be vested in the state which would, in effect, co-manage the economy with the guilds. So while guild socialism ‘rejects State bureaucracy...it [also] rejects Syndicalism because it accepts co-management with the state...subject to the principle of industrial democracy’.11 As noted Cole’s socialism was inspired by Morris’s News from Nowhere and at the core of guild socialism, whether that of Penty, Hobson or others, was an embrace of the Morrisian notion that work should be about the expression of humanity’s creative capacities and, therefore, about ‘the intelligent production of beautiful things’.12 Capitalism was a system essentially inimical to this, and was therefore not just materially, but also morally and aesthetically, impoverishing. Fabian socialism did not address these, the most fundamental failings and inequities of capitalism, because it did not seek the kind of worker autonomy that made creative labour possible. Of Sidney Webb Cole wrote, ‘he still conceives the mass of men as persons who ought to be decently treated, not as persons who ought freely to organize their own conditions of life; in short, his conception of a new social order is still that of an order which is ordained from without and not realized from within.’13 Only a democratisation of the industrial process of the kind proposed by guild socialism would make possible such creative self-realization. For the young Cole, the focus was on the need to effect a transformation of industry and society that replaced ‘useless toil’ with ‘joyful labour’. ‘The crowning indictment of capitalism was that it destroyed] the freedom and individuality in the worker, that it reduce[d] man to a machine, and that it treate[d] human beings as a means to production instead of subordinating production to the well-being of the producer.’14 ‘The greatest task of the present [wa]s the awakening of individuality and spontaneity in the worker’ and it was the desire to accomplish this that led Cole to embrace guild socialism and, in works such as The World of Labour, 1913,15 Self-Government in Industry, 1917, and Guild Socialism Restated, 1920, establish himself as its most important theoretician and effective populariser.16 To reawaken creativity, spontaneity and individuality in the worker it was imperative that ‘the individual worker [should] be regarded not simply as a “hand”...but as a man amongst men, with rights and responsibilities, with a human soul and a desire for self-expression, self-government and personal freedom.’ And, for this to occur, it was imperative that ‘the control of industry should be democratized; that the workers themselves should have an ever-increasing measure of power and responsibility in control, and that capitalist supremacy...be overthrown only by a system of industrial

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democracy in which workers will control industry in conjunction with a democratized State.’17 It was freedom, autonomy, individuality and the opportunity for creative self-expression, not the generalisation of material affluence which should be the primary desiderata for socialists. This was the error of the Fabians and other collectivists. They had prioritised the latter rather than the former. ‘Inspired by the idea that poverty is the root evil, socialists have tried to heal the ills of society by an attempt to redistribute income.’ But ‘higher wages will not make less dreary or automatic the life of the worker who is subjected to bureaucratic expert control and divorced from all freedom and responsibility.’18 The extension of public ownership and the enhanced efficiency and output which it would allow might have its place in the socialist commonwealth of the future but socialists must never lose sight of the fact that ownership was a means to an end and not an end in itself. Like Hobson and other guild socialists Cole was sensitive to the danger of the centralisation of decision-making authority which state ownership could precipitate; particularly so with the onset of the Great War. This saw the state assume control over significant areas of war-related economic activity. However, for Cole, ‘the fact was that capitalism had broken down under the strain of war, and the efforts of the State to make up for [its] deficiencies had raised more problems than it had solved.’19 For, as he saw it, in ‘round[ing] in the end the Cape of State Capitalism, we shall only find ourselves on the other side in a Sargasso Sea of State Socialism, which will continue to repress all initiative, clog all endeavour, and deny all freedom to the workers.’20 The experience of the wartime role of the state had therefore confirmed all Cole’s reservations about collectivism but, in particular, the view expressed in The World of Labour that ‘the extension of the powers of the state may be merely a transference of authority from the capitalist to the bureaucrat.’ 21 What, then, was to be done? As with Hobson, Penty and other guild socialists, the trade unions were to be a critical agent of progress. But to realise that role they needed to change and the issue of trade union structure therefore became fundamental. As he wrote in The World of Labour ‘today the question of trade union structure is the central problem before the labour movement’ 22 because, on the basis of the existing structure and trade union policy, the possibility of trade unions playing such a role seemed remote. In the 1917 edition of the work, Cole referred to ‘the lamentable flabbiness, the fatal indecision and the childlike gullibility’ of British trade unionism describing it as a movement bereft of ideas and policy.23 Yet there was evidence of change and in particular a realisation on the part of some that to be effective in a period which witnessed the marked concentration of industrial ownership, trade unions too had to become organised on an industrial basis. And, for Cole, this was the way forward: ‘out of trade unionism today must arise a Greater Unionism, in which craft shall no longer be divided from craft, nor industry from industry. Industrial unionism lies next on the road to freedom’.24 And the logical outcome of this Greater Unionism was guild

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socialism.25 In that regard, as Cole put it in Chaos and Order in Industry, 1920, ‘trade unionism itself would become ‘the nucleus of a new industrial order’. 26 Pari passu with this should go a process of what was termed encroaching control. ‘Only through their own organizations’, wrote Cole, ‘can the workers hope to counteract this tyranny of industrialism’.27 And the method these organizations would deploy was that of the progressive invasion of capitalist control; a progressive wresting of the right to make decisions from Capitalism and a vesting of it in the workers themselves. A process that would effect ‘a progressive atrophy of Capitalism corresponding to a development of function and opportunity and power for the proletariat.’28 As trade unions grew in size, ambition and the range of activity they encompassed, so a growing self confidence and power would allow then to subvert and assume the prerogatives of management. Thus, for Cole, ‘the two movements towards control and amalgamation must go on together, for each will lend to the other a momentum which neither could by itself acquire.’29 And there was already evidence that the trade union movement was evolving to accommodate ambitions that involved not simply wages and conditions but also those relating to the organisation and control of industry. As Cole put it in The World of Labour, ‘there are the first beginnings, in Trade Unionism today, of an attempt not merely to raise the standard of life or “better “conditions, but to change the industrial system and substitute democracy for autocracy in the workshop.’30 The very ‘experience of collective bargaining has given the unions confidence in their powers and the tendency continually to extend the sphere of such bargaining...it can be used as a means of getting a share in the actual control of the management.’ 31 In this way capitalists would be rendered socially functionless and the basis for the system’s transcendence established. ‘The workers, having learnt how to interfere in control, will then assume actual government, just as modern democracies have begun by enforcing concessions by insurrection and have then gradually forced their way to recognition and habitual control.’32 This, however, raised the issue of the role of politics and the state in this socialist transformation of society. For Cole, ‘in the Commonwealth today, power in the economic field is the key which alone can unlock the gates of real political power’ and parliamentary democracy, to have substance, needed to be underpinned by economic and social democracy.33 Cole’s concerns about the power of the state have already been noted and, in terms of the location of power and authority, Cole embraced a pluralism that saw the state as one, but only one, association within which these could reside. No one authority should be supreme. And just as humanity was multifaceted in terms of its goals and activity, so that should be reflected in the associated representative organisations in which people participated and the power which they wielded. In this regard power should follow function. In this context, one of decentralised control and decision-making, the state had a constructive if circumscribed role to play. To begin with Cole’s guild

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socialism was predicated upon the ownership of the means of production by the state.34 So, ‘expropriation is the state’s business; and the development of the new forms of industrial control must be coupled with the growth of state ownership. Nationalisation retains the importance assigned to it in Socialist theory; but it becomes a means and not an end in itself’ 35 Indeed Cole opined that it was ‘inconceivable that, even in a single industry, the workers would reach such a stage as to be ready and fitted to take over the control of industry before the state has actually stepped in and nationalised the service.’36 In his earlier works Cole also saw the state as having a critical role to play in representing the interests of the consumers. Thus, as regards major investment decisions, ‘the State as a representative of the consumers must have...a voice equal to that of all the producers’.37 Also, while a National Guilds’ Congress might assume responsibility for ‘the organisation of demand and supply...[and] the control of prices’, this function should be performed ‘in consultation with the consumer’, represented either by the state or, in terms of the position he was to take up in Guild Socialism Restated, 1920, by institutions such as co-operative societies, representative of consumer interests.38 In this regard the determination of prices was a ‘social function’.39 In contrast to the syndicalists, therefore, Cole believed that ownership of productive capacity should reside with the state, and the interests of the consumer should be represented and institutionally embedded. He recognised, as the syndicalists did not, the potential conflicts of interest between producer guilds and society as a whole. So what was required was not just workers’ control but a partnership between state and guilds or between the state, guilds and consumer organisations. ‘Syndicalism’, in contrast to Collectivism, ‘lays all the stress on the producer and none on the consumer. It...refuses to recognise the function of the great league of consumers we call the State. But this refusal, where it is not an unjustifiable theoretical development, is an unreflective antipathy to the bourgeois state of the present.’40 Yet for all its deficiencies, and in particular its failure to engage constructively with the political dimension, ‘syndicalism’ was, for Cole, ‘the infirmity of noble minds’, while ‘collectivism is at best only the sordid dream of a businessman with a conscience.’41 This then raises the question of where Cole stood, as a guild socialist on the issue of revolutionary as opposed to gradualist change. That Cole in his guild socialist period articulated clearly the notion of irremediable class conflict, there can be no doubt. In The World of Labour he wrote, that it should be ‘understood once for all, that the interests of Capital and Labour are diametrically opposed and although it may be necessary for Labour sometimes to acquiesce in “social peace”, such peace is only the lull before the storm.’ And again, ‘industrial peace then must not be permanent. There is a real class-antagonism, a quarrel that can only be adjusted by the overthrow of capitalist society.’42 Yet the combination of encroaching control, if aggressively pursued, together with the use of political power to secure the

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transference of the means of production to the ownership of the state, held out the possibility that a socialist transformation of society could be effected without violence or bloodshed. And he believed that, ‘provided the Labour Movement keeps its ultimate revolutionary aim clearly in sight, it will get on better with discipline than without it.’ 43 Cole did not rule out the possibility of violent struggle but his vision of revolutionary change was predicated on the possibility that it could occur without it. Cole’s attitude to the notion of a revolutionary transference of power also raises the question of his attitude to Marxism. For, like many on the Left in this period, he had to engage both politically and ideologically with those who articulated a Marxism which had at its core a commitment both to revolutionary struggle and the violent overthrow of the capitalist system. This engagement is a complex question spanning the whole of his intellectual life and it can only be touched upon briefly here. Cole certainly viewed favourably Marx’s method of analysis seeking to understand the trajectory of social development in relation to the material drivers of historical change. And, as Wright has indicated, there were points during the 1930s when he was willing to apply a Marxist label to himself.44 Moreover he recognised that class antagonism might indeed reach a pitch that would precipitate a revolutionary struggle for power; though this was an attitude that was more apparent at some historical junctures than others. Yet in the final analysis he was antipathetic to much in Marxism 45 and, in particular, to its conception of an intensified class struggle based on increasing social polarisation in a capitalist context. For Cole, Britain’s social structure was more variegated and complex than that which informed Marx’s view of capitalism. Here in particular he pointed to the new salariat that owed no ideological allegiance to capitalism and might be recruited to socialist purposes within a planned economy. He was also critical of what he saw as Marx’s determinism and the elevation of class above the individual. He also saw fascism as a complex phenomenon that could not easily be reduced to a last desperate attempt to maintain an imploding capitalism. His The Meaning of Marxism, 1948, based on What Marx Really Meant, 1934, represented a relatively sympathetic engagement with Marxism. However, part of that sympathy can be explained by Cole’s own rendition of Marx. The Marx who emerged from the former work ‘was a Marx humanized by Cole’s basic beliefs in creativity, fellowship, equality and liberty.’ Or, as another commentator has put it, what Cole produces is, ‘an activist, idealist, voluntarist, libertarian, minimally determinist version of Marxism; in fact a characteristic product of Cole’s own approach to social theory.’46 As to guild socialism, this was to be a short-lived ideological phenomenon. In the aftermath of a brief post-war boom unemployment rose rapidly and trade unionism, the key agency of guild socialist change, was profoundly weakened. With the economic downturn also came the collapse of the National Guilds League and practical manifestations of guild socialism such as the National Guild of Builders, in 1923. Guild socialism also experienced

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ideological rifts, particularly in relation to different conceptions of the role of the state in its vision of the socialist future. Moreover there were different views as to the character and outcome of the class struggle which would inform and drive the transformative process. For some, it would be waged through encroaching control, for others it would assume a more violent and revolutionary form. As to the latter, many guild socialists moved into the British Communist Party when it was formed in 1921.47 The demise of guild socialism left Cole without an ideological cause to champion or a political economy to which to adhere. As Beatrice Webb put it in an entry in her diary in May 1924, ‘G.D.H. Cole continues to write articles in the New Statesman and to carry out his duties as a staff officer to the W.E. A. with exemplary regularity but he has lost all touch with other people and has no spiritual home in, or outside, the Labour Movement. Politically, he is a lost soul - the older men have ceased to fear him; the younger men no longer look up to him...He still trots out his “Workers’ Control” - but in a disheartened fashion without conviction that anyone cares about it.’ 48 The General Strike of 1926 further highlighted the contemporary limitations of the trade union movement and, therefore, the extent to which extra-parliamentary action could advance the socialist cause.49 Perhaps in consequence of this, and in a period when he lacked a political home and defensible political ideology, Cole pursued intellectual interests that were less of a theoretical and propagandist nature and more those of an historian and educationalist.50 And certainly it has been argued that in the 1920s his aim became that of inculcating into the working class a sense of their own history, identity and historical mission; or, as one commentator has put it, ‘arm[ing] the worker with that sense of his own past which would create a confidence to make his own future.’51 Whatever the drivers, for much of the 1920s Cole elided a direct engagement with politics and political economy. However by the late 1920s he had ended this sojourn in the political wilderness, joining the Fabian Society in 1928 and embracing the centrality of parliamentary action in laying the basis for any future progress in the direction of workers’ control and socialism. In this regard he came to give a greater role to the state and conventional politics and, in 1928, played a major role in drafting a pamphlet, Labour and the Nation, 1928, which represented an expression, articulated in Fabian terms, of Labour’s policy stance on the key social and economic questions of the day.52 One year later, in 1929, Cole published his first major work of political economy in almost a decade, The Next Ten Years in British Economic and Social Policy, 1929, which effectively position him as a mainstream Fabian who sought to stabilize capitalism before progressing socialism by essentially statist means.53

The state and socialist planning, 1929-45 In the late 1920s and early 1930s, faced with a capitalism in crisis and in imminent danger of collapse, the imperative for Cole became the formulation

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of a strategy which would mitigate the suffering of the masses, prevent a politically violent implosion of the system and lay the basis for socialist advance. In this task he was influenced by the work of J.A. Hobson and Maynard Keynes. His sense of the nature and causes of the crisis was initially derived from the former though, later in the 1930s, it was also informed by the latter. And it was upon such theoretical foundations that his proposed policies rested. Before 1931 the objective was to articulate a package of measures which would deliver social control over critical areas of economic activity, while laying the basis for a smooth transition from an economy still essentially capitalist, to one characterized by planning on the basis of an extensive social ownership of economic activity.54 After 1931, it became necessary to advance a more radical programme, to which end Cole played a critical role in establishing the Socialist Society for Information and Propaganda 55 and the New Fabian Research Bureau. The first, as its name would suggest, focused on the dissemination of socialist ideas; the latter on furnishing the basic economic research needed to transform the theoretical rigour, sophistication and coherence of Labour thinking on economic policy issues.56 As to Cole’s own analysis there were clearly Hobsonian inflections. Writing in The Next Ten Years, he made the point that ‘it is not the inducement offered but the size of great men’s incomes that determines the size of the savings under present-day conditions’ and that ‘there [was] no guarantee that the right amount will be saved.’57 Indeed given the skewed distribution of income and wealth, it was highly likely that savings would outstrip the willingness to invest and, in consequence, a crisis of underconsumption would result. It therefore became ‘vital...that the purchasing power distributed in society should be measured in accordance with the productive capacity of the community, and not left to depend upon the active production secured by the free play of the forces of supply and demand.’ 58 Post General Theory the analysis became more obviously Keynesian. Writing in a pamphlet entitled Monetary Systems and Theories, 1942, for example, Cole opined, in a quintessentially Keynesian manner, that ‘from the standpoint of the community, “savings” that do not lead to “investment” - that is, to the spending of the saved money on capital goods - are not real savings at all. They are cancelled by the losses of those who cannot sell their goods at remunerative prices. This is the gist of Lord Keynes’ theory of “savings” and “investment”; and most economists are agreed that this part of his theory is true.’59 As to remedies for depression and macroeconomic disequilibria these varied over the period after 1929. Cole was the author of We can Conquer Unemployment, 1929, the Labour Party’s rebuttal of Can Lloyd George do it?; a pamphlet in which the Liberals had articulated a radical expansionary public works strategy endorsed and informed by the thinking of Maynard Keynes. Cole’s pamphlet accomplished the impressive feat of castigating the Liberals for appropriating Labours’ ideas, whilst at the same time rejecting

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them as ineffectual, financially unsound and politically irresponsible. The crux of his polemic lay in the extent to which demand could be stimulated while adhering to the prevailing fiscal orthodoxy of a balanced budget. And Cole’s solution was one which utilized what might now be termed a balanced budget multiplier. Thus taxation would be used to redistribute income and wealth, with increased tax revenues being disbursed by way, for example, of family allowances. In effect, those with a high propensity to consume would be favoured over those with a high propensity to save, with aggregate demand stimulated and jobs created in consequence.60 ‘We must get the resources required for employing the unemployed mainly, and for providing family allowances wholly, from taxation of the social income, and we must get the capital required for social development from the investible surplus remaining after taxation has been levied.’61 Of course what was not factored into the balanced budget equation was the rapidly shrinking revenue base that came with the diminution in the level of economic activity when general economic depression finally struck. Cole therefore trod an interesting tightrope. On the one hand he did not want to fall off into the arms of the Liberals. On the other he did not want too obviously to succumb to the siren call of the I.L.P. whose proposals to increase working-class purchasing power had been soundly rejected by the 1927 Labour Party Annual Conference. On the one hand his reconciliation with the conventional politics of the Labour Party suggested the need for state action, on the other he was not yet prepared to give the state the pre-eminent role in the conduct of economic policy which he was to do in the 1930s. In the end the circle was squared by a proposal for redistribution which, while driven by the state, would realize its beneficial consequences through the additional purchasing power deployed by the working-class consumer. As he wrote in The Next Ten Years, ‘the bulk of the new taxation proposed is to be raised, not for spending by the Government but for direct redistribution as purchasing power among the members of the community. The sum provided for family allowances as a whole, and the bulk of the money allocated to the prevention of unemployment will become purchasing power in the hands of the recipients. It will thus serve directly to bring about an expansion of demand for commodities.’62 In line with the underconsumptionist analysis which informed this prescriptive position, Cole continued throughout the 1930s to emphasise enhanced working-class consumption as a driver of economic activity. Thus in relation to the expansionary potentialities of monetary policy he was clear in The Principles of Economic Planning, 1935, that ‘whenever the need arises to increase the supply of money, I am suggesting that the increase ought to be made not in the form of increased loan credits to either producers or consumers, but in non-repayable presents of purchasing power to all the citizens, save to the extent to which the state decides to use the money itself for public purposes.’63 That said, by the 1930s, Cole had also come to believe that the state itself had a more direct, potent and immediate role to play. For, as he

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saw it, state-financed public works created economic activity and thence employment without the intermediation of the private consumer.64 In Practical Economics, he was particularly emphatic, ‘there is only one condition on which a capitalist economy can maintain “full employment” for any length of time. This condition is that the state will so act to maintain the demand for the factors of production at the requisite level. The state can do this by a policy of public works, accompanied by monetary expansion.’65 In this period Cole also came to accept the need for an appropriately supportive monetary policy if the economy was to be moved back towards full employment.66 In The Next Ten Years he had recognized the negative role which a monetary system in private hands could play, both in terms of the manner in which it could obstruct a socialist policy of industrial transformation, and the deleterious macroeconomic impact it could have. Thus ‘the joint stock banks by discrimination in the granting of credits, could largely neutralize the effects of [a] policy of national industrial development...and the Bank of England, by manipulating the bank rate, or even by transactions in securities, could go a long way towards causing an industrial depression’. Yet Cole remained sceptical as to the efficacy of monetary policy toute seule in turning an economy around. Even with a socialization of the banking system and the use of monetary policy for socialist purposes, the management of money and credit could ‘help but it cannot create’.67 Similarly, in 1935, Cole wrote of the banking system that ‘its power by manipulating money or controlling bank policy, even to the extent of bringing the banks under full public ownership to increase the employment of resources in production, is exceedingly limited...unless it controls the industries whose production is to be increased.’68 He was also concerned that to the extent that an expansionary monetary policy could help bring about a fuller utilization of resources, it ran the risk of producing ‘recurrently rising prices’ which would ‘confer advantages on every sort of capitalist monopoly’; though Cole also made clear that if such a policy could contribute to increased economic prosperity it should be supported, even at the risk of benefitting vested interests or an inflationary spiral.69 And certainly, by the 1930s, he was convinced that a planned, full employment economy required an appropriate monetary policy. ‘We cannot have planned production (or in my view, full employment) without planned finance, or without public control of the commercial banks’. ‘Bank nationalization’ was therefore ‘needed, not for its own stake, but as the instrument of a policy of “full employment”.’70 As he wrote in What Everybody wants to Know about Money, 1933, ‘any Socialist government which is not prepared to tackle thoroughly the question of the banks cannot be a government that means to seriously advance socialism’.71 But Cole was also clear that even an expansionary monetary and fiscal policy conducted on Keynesian or Hobsonian lines would simply steady the capitalist ship. It could prevent the capitalist system’s catastrophic demise and it could, in consequence, materially improve the position of the working class. But, such a macroeconomic strategy would not address capitalism’s inherent

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volatility, inefficiencies and inequities. To do that a more radical interventionist strategy was necessary; one that involved social ownership and planning. And through the efforts of the NFRB and SSIP ‘the idea of economic planning emerged as a central theme of Labour’s refurbished socialist ideology in the 1930s.’72 As we have seen the extension of social ownership was integral to Cole’s conception of the transition to guild socialism. In The Next Ten Years, the term socialization was preferred to signal the possibility of alternatives to outright national ownership and, in that respect, his concern over the centralisation of economic power in bureaucratic hands persisted and was also to surface with renewed force in the post-war period when various forms of social ownership of a non-Morrisonian kind were mooted. 73 In the 1930s the extension of social ownership was central to his understanding of how the British economy could be stabilized, rationalized, established on a firm basis and planned for socialist purposes.74 But that understanding was now essentially Fabian, with nationalization being seen primarily in terms of the elimination of waste and the utilization and direction of productive capacity for social purposes. It is true that the issue of workers’ control was one which surfaced periodically in his writing and the link made with that creative self-fulfilment which should lie at the heart of socialism: ‘we must make men and women citizens of industry as well as the state’. And a measure of workers’ control was necessary, for otherwise while ‘the robots may be richer and more leisured... they will be unhappy with an unhappiness that many of them will be unable to define or to track to its source.’75 In this regard Cole continued to articulate his vision of guild socialism as the ultimate goal. ‘That a socialist economy should develop towards a system of guild control seems to be indispensible if the dangers of top heaviness and concentrated bureaucracy are to be avoided’; ‘in the long run the aspiration of a planned economy must be to make each industry to the fullest possible extent a democratic, selfgoverning guild.’76 And Cole proclaimed himself ‘an unrepentant Guild Socialist.’77 Nevertheless, in most of his writing in the 1930s workers’ control is articulated in terms of models of representation within the structures that nationalized corporations would present. It was not seen in guild socialist terms of decentralized producer control of a multiplicity of relatively autonomous enterprises. Moreover, in line with the increasingly Fabian complexion of his political economy, there was greater prominence given to the role of the expert.78 As he put it in The Next Ten Years, ‘within the limits of the broad control of policy by the State it is indispensable to give the expert a wide discretionary power and a liberal freedom to experiment in new methods.’79 The Fabian conception of progressing nationalization, and the benefits to be expected from this, is particularly apparent in The Next Ten Years. First, there was an acceptance that the emergence of monopolistic arrangements was something to be embraced as it prepared areas of capitalist industry for regulation, control and, ultimately, social ownership. Thus, for Cole, ‘it [wa]s

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INTRODUCTION

of vital concern for Socialists to make capitalist industry as suitable as possible for collective regulation...in the transition from a capitalist to a socialist economy, it will be necessary to extend a progressive control over industries whilst they still remain in capitalist hands and this involves the existence of collective organizations with which the State itself can deal.’ 80 This done, nationalization should proceed, though not on such a scale as to encompass the totality of economic activity. Socialising the control and direction of economic life would ‘certainly involve the transference of a large number of enterprises now in private hands to various forms of public ownership and administration but it does not involve...universal public ownership’.81 In the 1929 work there was also considerable emphasis on the possibilities opened up by a socialization of control which stopped short of outright ownership. So, once ‘let the state control the nation’s industries, and it need not care who owns them as long as the unfettered power of taxation is in its hands.’82 The assumption too was of an incremental or gradualist approach. ‘The socialization of industry, restated in these terms, comes to be envisaged...as a progressive transformation of capitalist industrialism into a Socialist system’ and The Next Ten Years was conceived very much in terms of articulating ‘the more important steps that can be taken within the next few years in order to begin straightening out the tangle of our economic affairs’, rather than as a blueprint for the construction of a socialist commonwealth.83 However, with demise of the second minority Labour government in 1931 the tone becomes more aggressive and urgent and Cole’s proposals, like those of other Labour thinkers, came to involve an extension of the scale, and an acceleration in the pace, of nationalization.84 In the Principles of Socialism, 1932, an SSIP pamphlet, Cole wrote of the need for ‘an immediate frontal attack on the key positions of capitalism’ for ‘the policy of gradual transition to socialism is in danger of meaning no transition at all, but the turning out of Labour governments, which seems only to make the situation worse.’85 He looked therefore to the immediate nationalization of a swathe of key industries, but in particular the banking system, together with the creation of a National Investment Board which would play a critical allocative and planning role. What was needed was the power to plan and to give effect to planning decisions once made. Such an extension of social ownership was also critical for the delivery of a macroeconomic strategy, of the kind noted above, that would move the economy out of depression. Thus the destabilizing and restrictive tendencies of capitalism could not be eliminated as long as ‘at any rate major industries, including the key industry of finance, remain in private hands’. 86 So, for example, ‘the wider the sphere of public ownership of industry is, the greater is the State’s power to carry out a balanced programme of public works.’87 While, therefore, a strategy such as Roosevelt’s New Deal was to be welcomed, ‘there is no reason to suppose at all that the New Deal, in helping the United States to weather the crisis of 1929 and the following years will prevent a recurrence of such crises.’88 A New Deal strategy could ‘succeed in the long run [only] by passing beyond capitalism and superseding

13

INTRODUCTION

capitalist incentives to production and the capitalist system of distribution of incomes by effectively Socialist alternatives.’ 89 What was needed was a transformation altogether more profound than that encompassed by macroeconomic management. In this regard it should be noted that Cole, au fond, was part of that tradition, with roots in the very origins of socialist political economy, that evinced a deep suspicion of the market and the allocative and distributional outcomes which it generated. Prices, in the context of a capitalist system, were seen as rarely a reliable indicator of social need, and even in a socialist context social imperatives might necessitate the market’s circumvention or the qualification of its outcomes. What socialists needed to work to was some concept of ‘real value’; one which ‘consisted] in the power of a thing to satisfy human needs and desires, irrespective of those who have the needs or desires to pay for it.’ 90 Thus an allocation of resources which optimized social utility must be one which implied reference to a ‘social standard [of value] which cannot be identified with the price standard accepted by most economists.’91 Under capitalism, ‘the price system fails to measure anticipated satisfactions because of the unequal value of money to rich and poor.’ 92 In this context the concept of consumer sovereignty, while in some ways an attractive one, and consistent with Cole’s emphasis on freedom and individual selfexpression, was nonetheless problematic. For while it ‘would doubtless be reasonable to demand that the workman should recognize and subject himself to the demands [of consumers]… if these were determined by the community as a whole, on a basis of its needs…there is no reason why it should willingly submit to the control of productive effort if this is based on the employer’s expectation of profit, this expectation being based, in turn, on a wrong distribution of purchasing power.’93 Given an equitable distribution of income and wealth, Cole accepted that the price mechanism would roughly reflect social need. But even then the price mechanism as a determinant of optimum resource allocation had its limitations, for there were certain ‘basic needs’ that should be met independently of consumer demand. Moreover the state must necessarily make strategic decisions, with implications for resource allocation, independently of the imperatives emanating from consumer demand. In consequence, for Cole, consumer demand became something of a residual element in the imperatives driving the allocation of resources. As he envisioned it in Practical Economics, 1937, it would be ‘the resources of production, beyond those employed in meeting basic needs…and of course those required for the maintenance and increase of capital’, that would ‘be directed to giving consumers what they want.’ 94 As to the pricing of labour, Cole envisaged a circumscribed and diminishing role for the market. ‘Remuneration for work done [would] be retained at all only to the extent to which it is necessary in order to assist in regulating the supply of labour and in eliciting the satisfactory response of effort from workers’.95 However, Cole considered that under socialism even this

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INTRODUCTION

circumscribed role would diminish over time. As he put it in the Principles of Economic Planning, ‘I believe the tendency will be for a planned economy steadily to reduce the proportion of total income distributed in the first of these ways and steadily to enlarge the amount of the social dividend.’96 In effect, with a substantial and probably growing proportion of the needs of workers furnished directly by the state, the purchasing power represented by wages would simply become less significant. And while Cole accepted ‘there [was]…no objection to allowing the laws of supply and demand to operate to a considerable extent upon the relative levels of remuneration’, he believed that it would be ‘wiser to equalize the eligibilities of different occupations more by varying hours and conditions of labour than by establishing widely different wage standards.’97 As to planning it was logical therefore to argue that, ‘decisions involved in the national plan ought to be made as far as possible in terms of real things, and only translated subsequently for convenience into terms of…money.’98 Real things, real value, use value: it was by reference to those concepts that a socialist economy would be managed; no longer by reference to the shadow world of market prices flickering on the walls of the capitalist cave. And planning was the key to the socialist economic future. It made possible the circumscription of the price mechanism and the gradual replacement of ‘the monetary incentives on which capitalism relies for getting the world’s work done, by other incentives more consistent with the social interest.’ ‘Planning under public auspices, and with a view to the satisfaction of consumer needs’ also ‘offer[ed] the prospect of eliminating the wastes inherent in unregulated competition, whether of the older or the newer monopolistic variety.’99 It allowed supply to be matched with demand and therefore could ensure the full utilization of resources. And not just the aggregate matching of supply and demand, for industry would be ‘rebuil[t]… with the right proportions in view of modern needs, in accordance with a definite plan, instead of trusting to the blind forces of individual profit seeking somehow to create an harmonious structure’.100 Together with the extension of social ownership, it would also sweep away the constraints on the expansion of output that were characteristic of a capitalism whose industrial structure was inherently monopolistic.101 Cole was also clear that planning should encompass the business of distribution and that a socialist planning authority would ‘be inexorably driven to plan the distribution of incomes as a condition precedent to the just or expedient planning of production’. 102 So on what basis and within what structures would planning take place? Cole wrote at length on the bureaucratic paraphernalia of economic planning, mooting various entities such as a National Planning Commission, a National Planning Authority, a National Investment Board, Departments of Inspection, Import Boards etc and those who would wish to pursue further this aspect of his thought can consult, amongst others, works such as The Machinery of Socialist Planning, 1938, and the Principles of Economic Planning. As to the basis for effecting the socially optimum allocation of resources

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INTRODUCTION

and distribution of incomes, Cole’s general desire to plan in terms of real things and social utility, and his aspiration for an increasingly circumscribed role for the price mechanism, has already been noted. However, he did not really engage with the socialist calculation debate which raged with a particular intensity in the 1930s103 and his discussion of the basis on which planners might make decisions was distinctly unilluminating. He did suggest that the sale of goods and services should be at prices corresponding to their costs of production but he also opined that ‘if the planning authorities have overestimated or underestimated the demand for a particular commodity, it will be possible to adjust supply and demand by raising or lowering the price.’104 And in the same work he argued that ‘over by far the greater part of the field of production...the task of a planned economy will not be to dictate what is to be consumed, but to respond to the movements of consumer demand’,‘mov [ing] prices accordingly’.105 And again ‘both the planned and the planless economy have the same necessity to adjust their output to what the consumers are prepared to buy at prices at which the producers are prepared to sell.’106 In this regard he seemed, at least in the short to medium term, to be prepared to envisage planners and a planning system responsive to consumer demand and market price. In truth it must be said that while the rhetoric of planning was at the core of his political economy in the 1930s, and remained so in the post-war period, he added little to an understanding of what would be distinctive about socialist economic planning in terms of the basis upon which it would be conducted, the means it would use and the ends it would serve. This faith in socialist planning also had a particular bearing on Cole’s attitude to the Soviet Union. A New Fabian Research Bureau trip to Russia in July/August 1932 strengthened Cole’s and others interest in Soviet planning107 and he certainly believed ‘that planning Russian style could yet prove a practical model for a British socialist system.’108 Like the Fabians he believed that planning meant the calculated and rational utilization of the nation’s resources for maximum social benefit and, in this context, socialist planning was contrasted with capitalist disorganization; particularly in the aftermath of the Wall St. Crash. And this attitude persisted throughout the 1930s alongside disquiet about a political system where purges had become an instrument of state policy. Yet that disquiet was muted. Throughout the 1930s and into the post-war period Cole, as one writer has put it, ‘sought to explain to the social democratic left that Russia remained an essentially socialist society; and a society which, if it abrogated some liberal democratic values, decisively enlarged and realized others.’109 Writing in Left News in 1942 he stated “I regard the Soviet system as much more democratic than parliamentarism and I advocate it for a large part of Europe as the most appropriate way of bringing democracy about”.’ 110 Again, in a Plan for Britain, 1943, he wrote that ‘in a clearly realistic sense the Russian peoples are a great deal more free than we are or can be till we have abandoned our atomism and set out to make a determined pursuit after collective and not

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INTRODUCTION

merely individualistic values.’111 And, as he saw it, what he was proposing in the 1930s ‘involve[d] some sort of National Economic Plan such as exists today in Soviet Russia and nowhere else in the world.’ 112 Like many on the Left, therefore, Cole qualified criticism with equivocation: equivocation borne partly of a perception of the particular circumstances and challenges which the Soviet Union was confronting, partly of a determination not to concede terrain useful to the critics of planning and partly of a desire to believe that what seemed to be rational must ultimately be defensible. Soviet Russia was therefore ‘a guarantee that, if other communities do take the task of constructing a Socialist system seriously in hand, they will not find themselves isolated in a capitalist world.’ 113 Cole and the affluent society The post-war world was to bring different and, in some ways, more formidable theoretical and prescriptive challenges. If not immediately then certainly by the 1950s social democratic political economists such as Cole confronted those posed by full, or near-full, employment, sustained economic growth, rapidly rising living standards and a relatively stable capitalism that was seen to be delivering the goods and in ever increasing quantities. Moreover, by that decade, and courtesy of the Attlee governments, Labour had completed a substantial part of the programme which it had mapped out in the 1930s and presented to the electorate in 1945. As Richard Crossman put it, ‘those who manned the defences of Jericho could not have been more surprised than those socialists who saw the walls of capitalism tumble down after a short blast on the Fabian trumpet.’ 114 So for some writers there was a need for a fundamental revision of social democracy in the light of a profound alteration in the nature of capitalism. Crosland, for example, did not believe that the social and economic character of post-war Britain merit the label of capitalism at all and other writers concurred. 115 Thus in addition to the manifest dynamism of capitalism, many saw a radically altered distribution of economic power, with the state having assumed authority in relation to macroeconomic management and having put in place the essential structures of a welfare state. Nationalisation had taken a significant section of the economy’s commanding heights into social ownership, circumscribing the area of the economy over which private enterprise held sway. Further, the managerial revolution was spelling the demise of the pivotal role of the capitalist entrepreneur, while full employment significantly redressed the balance of power in the labour market in favour of the trade union movement. As Roy Jenkins saw it, the capitalist class had surrendered its power ‘partly to the state, partly to their own managers and partly to the trade unions’. 116 Cole viewed these developments differently. Socialism must be about more than the ‘managerial welfare state’ that had emerged in the aftermath of the post-war Labour governments and the Keynesian revolution.117 It had to be

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INTRODUCTION

about more than a mixed economy still heavily skewed in favour of the private sector. It must offer more than the spiritually impoverished material affluence of a consumer society. And he bridled at the extent to which so many social democrats had accepted that these things represented anything other than a reinvention of capitalism that left intact its loci of power and its demoralising raison d'être. As Cole saw it, ‘most of the non-Marxist socialist economists swallowed Keynes whole and became his most fervent disciples’.118 For many, indeed, demand management had become both the essence of socialist planning and something that vitiated any need for the further extension of social ownership. As he put it in Socialist Economics, 1950, ‘this new Keynesian economics deeply affected the thought of Socialists. Hitherto most socialists had considered that the disease of unemployment in both its long-term and cyclical form was incurable except by socialization...that is, by the State taking over industry and employing every available person and, at the same time, so distributing purchasing power as to ensure that there would be a demand for all that socialized industry could produce...But now it appeared if Keynes were right that full employment would be maintained without socialisation, merely by manipulating the correct leavers at the centre in the money and investment markets. There might be a case for socializing this or that industry on other grounds...but not in order to cure unemployment.’119 For Cole this view was manifestly flawed. First, he was unconvinced that demand management could keep in check the inflationary pressures which full employment threatened to unleash, ‘unless it is in a position to control, broadly, what is to be produced and when, and what is charged for it, and also the broad distribution of purchasing power.’120 Moreover, ‘full employment’ was a problematic concept which might accurately characterise the state of the labour market in some regions but not in others. To achieve genuinely full employment ‘the State must be in a position to control the position of industry in order to bring balanced employment to the workers rather than expect them to migrate in large masses in search of work.’ 121 In addition, and again with an eye to inflationary pressures, ‘in a Socialist society, it will clearly not be possible to allow wage rates to be settled by a large number of uncoordinated bargains...There will have to be both some general way of determining how large an aggregate of wage payments the economy is able to afford and...how what is deemed to be available shall be divided amongst the various claimants.’122 In short then a concerted regional policy, price and wage regulation would be necessary just to deliver on social democracy’s macroeconomic objectives. Yet that still left relatively untouched the heartlands of capitalist power. Nationalisation had certainly proceeded under the Attlee governments. But the programme of extending social ownership had proved, with the exception of steel and sugar, relatively uncontroversial. As Cole put it in a New Statesman pamphlet, enterprises ‘singled out for socialization, with one exception, were services which can be seen as falling broadly within the “public utilities”

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INTRODUCTION

range...and from the outset have been subject to public regulation and control...Thus there was nothing essentially “socialistic” in proposals to nationalize any one of these services.’123 The ‘proposal to socialize “public utilities” raised no real question of principle between Socialists and Anti-Socialists’.124 Again, writing of the Labour Party’s position in the 1930s, Cole stated that, ‘their plans of nationalization were substantial and challenging to some great capitalist interests, particularly in the case of iron and steel: but they were plans which could be carried out without interfering seriously with the main structure of capitalist ownership and control.’ 125 That, of course, was the significance of the post-war fight over steel. Steel was something of critical importance for capitalism; an industry pivotal in terms of the power it could exert indirectly over a swathe of industrial activity.126 ‘It is a key industry: its pricing policies affect the fortunes of many other industries, including those on which the long-run success of Britain as an exporter chiefly depends... It has a naturally strong tendency towards monopoly. It is an industry in which, because of the technical conditions, it pays the profit-seeking firms best to keep total productive capacity down as near as possible to the minimum expected level of demand, and to maintain high prices rather than to pass on the benefit of technical economies to the consumers.’127 It was an industry where ‘monopoly paid handsome dividends: arms-pushing was a highly remunerative business: risks could be reduced by bribing or cajoling Ministers or politicians or kings or tribal chiefs to favour the interests of the great firms and their investing associates.’128 But even further extension of social ownership into areas such as steel, would not deliver that to which socialists should aspire. And here, in the 1950s, Cole once again touched base with his guild socialist roots. As a Guild Socialist I believe that industry will not work really well until the responsibility for its efficient control is fairly shared with the workers by hand and by brain, under conditions based on the recognition of every worker as a responsible partner in a democratically organized public service.’129 Post-war nationalisation had not been the precursor of this. The creation of public corporations had made ‘little difference’ to the ‘actual status and conditions of work’ of their employees.130 Cole therefore looked once again to the ‘trade union movement’ to ‘develop as far as possible a structure through which an advance to workers’ control can be effectively made.’ 131 Apart from anything else this was a prerequisite for corporate efficiency, for Cole was ‘convinced that there can be no way of making industry work well under socialization without enlisting the workers as democratic partners in control, above all at the workshop and factory level.’132 It was necessary too if industrial relations were to be harmonious. It was critical if workers were to act responsibly in a full employment context and avoid exploiting their strengthened bargaining position to secure inflationary wage gains. But above all the extension of workers’ control was essential for the creation of a truly democratic society: for, ‘it is impossible to have a really democratic society if most of the members have to spend most of their lives at work under essentially undemocratic conditions.’133

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INTRODUCTION

And Cole’s thinking on the forms which post-war social ownership should assume must be set in this context. Here Cole, like many others on the Left, was critical of the Morrisonian model. Crucial to democratisation were therefore ‘new forms of social ownership and control to replace capitalist enterprise’;134 new forms which would avoid the inherent authoritarianism of the monolithic Morrisonian corporation and create opportunities for decentralised decision-making and the extension of workers’ control. The legacy In the famous doggerel categorisation of Cole by Maurice Reckitt, he was ‘a bit of a puzzle...with a Bolshevik soul in a Fabian muzzle.’135 This contains at least half the truth. For while the Fabian muzzle was certainly apparent from the late 1920s onwards, Cole’s soul was Morrisian not Bolshevik. His vision was informed by a libertarian socialism which, like Tawney’s, saw humanity in terms of ends not means. What he looked to was to transform work into something that involved creative self-fulfilment, and while he came to recognise the profound restraints upon the realisation of that ideal, it was one to which he continued to adhere. In that respect Asa Briggs was correct when he saw Cole as ‘the Enlightenment on the surface: the Romantic Movement underneath’. 136 And, as Wright has perceptively remarked, ‘if we seek to locate Cole within an intellectual tradition, it is a tradition staffed overwhelmingly by radical individualists. It contains Morris and Whitman, Cobbett and Paine, Belloc and Chesterton’. 137 At least this is the company kept by his socialist soul, even if, in the 1930s, his mind occupied a different ideological terrain. Assessing his legacy is more problematic. At the time of his death in 1959 industrial democracy and workers’ control had a place only in the sub-literature of socialism. However, by the late 1960s and early 1970s, which saw an efflorescence of interest in these things, 138 guild socialist principles, if not guild socialism, ‘found a new strength and following in Britain and the world, and the British trade-union movement and the Labour Party...incorporated the principles of workers’ control into their statements and manifestoes for the first time.’ 139 As Houseman has pointed out, Cole’s work on workers’ control was published in over a dozen languages and this literature had some influence on Yugoslav development and planning in the 1960s and 1970s.140 In these decades too his reservations as to what might be achieved solely by macroeconomic management were echoed by a generation of post-Keynesians such as Joan Robinson, Nicholas Kaldor and Thomas Balogh whose thought, amongst others, played a part in effecting the turn towards planning which informed the Labour Party’s political economy in the Wilson years. 141 Yet with the passing of that period, and the waning of enthusiasm for both industrial democracy and planning, interest in Cole correspondingly diminished and it would be difficult now to substantiate Houseman’s view that ‘the years since his death have seen G.D.H. Cole loom larger than ever, as a

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INTRODUCTION

literate and formidable social political philosopher and to some extent as a prophet.’ 142 If his works continue to be read it is more by historians: historians of socialist political economy and historians of the labour movement. In this regard, while scholarship has moved on, his multi-volume History of Socialist Thought will continue to be a reference point for those who work in the field and his biographies of Owen, and in particular Cobbett, and his edition of the latter’s Rural Rides, will continue to be regarded and read as major contributions to labour history. Yet in relation to his work as a socialist theorist one final point should be made. Unlike the Fabians and the socialist revisionists of the 1950s and 1960s, let alone those of the New Labour period, Cole, like Morris, and for that matter Tawney, posed the kind of questions to which capitalism has manifestly failed to provide an answer: questions related to the nature and purpose of work, the significance and character of material affluence and consumption, the conditions necessary for creative self-fulfilment and the prerequisites of an informed and democratic citizenry. Selecting the works Selecting eleven volumes from his enormous literary output to convey a sense of the work of G.D.H. Cole is a formidable task and whatever approach is adopted is open to criticism. If the selection is to be thoroughly representative then it must necessarily include works of social theory, economics, political economy, economic history, social and labour history, political theory, intellectual history, detective fiction and sociology, to say nothing of the full range of literary genres from polemical pamphlets to scholarly monographs. Selecting on this basis, as this list suggests, the edition would necessarily have been more voluminous, and considerably so, than the present one, and this approach would also have carried the risk of a selection which failed to give a coherent sense of the evolution and trajectory of Cole’s socialist thinking over the five decades of his active intellectual life. There is also the issue as to whether one goes for the classic texts or those which are lesser known, or less easily available, and which have not, as some would see it, had the attention they deserve. In this regard there was a temptation to include some of the post-Great-War works that were produced under the auspices of the Carnegie Foundation and published in 1923: Trade Unionism in Munitions, Labour in the Coal Mining Industry and Workshop Organization: works which not only contribute to an understanding of the post-war economy and the contemporary trade union movement but also illustrate Cole’s strength as an empirically-rooted theoretician. However, in the end, I have chosen works, books and pamphlets, which I hope are representative of the three critical periods of Cole’s socialist thinking: the guild socialist decade from 1913-23; the post-1929 period when his political economy was dominated by the notion of socialist economic intervention and planning and the post-war period when, like other socialist

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INTRODUCTION

theorists, he sought to come to terms with the particular challenges posed by the legacy, positive as well as problematic, of the Attlee governments, and the emergence of an affluent society. Also, because it is representative of the historical works of a particular period (1923-29) when there was a hiatus in the output of Cole the theoretician, I have included his biography of William Cobbett. In any case, as regards the latter, no selection would be complete without an example of his extraordinary contribution to labour history and The Life of William Cobbett, 1927, is certainly amongst the finest of his historical works: not least one feels because of his obvious empathy with the subject. In her Life of G.D.H. Cole, Margaret Cole wrote of students who having ‘selected “Cole and his ideas” as a subject for their doctoral theses... got themselves so bogged down in his own published writings as to render their own work, painstaking as it was, almost unreadable by anyone other than a specialist’.143 This is one, but only one, of the dangers of seeking to master the formidable corpus of Cole’s writing. The other main one being that justice is not done to important aspects of his life and work. I hope this Introduction has avoided the first of these pitfalls and provides an understanding of the evolution of Cole’s socialist political economy, but I am only too aware that to avoid the second is beyond the scope of anything other than a substantial monograph. Others have essayed these tasks and efforts, for a full appreciation of the achievements of one of the most important figures in the intellectual history of the twentieth-century British Left, the reader should consult their works which are noted below. I hope this selection of monographs and pamphlets will inspire them to do so. Notes 1 G.D.H. Cole, The British Labour Movement - Retrospect and Prospect, Ralph Fox Memorial Lecture, London, Fabian Society, 1951, pp. 3-4. 2 M. Stears ‘Cole, George Douglas Howard (1889-1959), university teacher and political theorist’, Oxford Dictionary of National Biography, Oxford University Press, 2004, Vol. 12, pp. 505-6. 3 The work ‘arose directly out of the discussions of Syndicalism held by the Balliol College Group and the Political Science Group of the O.U.F.S’, L. Carpenter, G. D.H. Cole: An Intellectual Biography, Cambridge, Cambridge University Press, 1973, p. 16. The work went through four editions by 1917. 4 Syndicalism in both France and the United States is discussed at some length in Cole’s first major work The World of Labour, 1913. In France syndicats of workers were federated in bourses du travail co-operating with each other and acting collectively through Confédération Générale du Travail. In the United States syndicalism was promoted through the Socialist Labour Party under the leadership of Daniel de Leon, with the syndicalist International Workers of the World being established in 1905. 5 On pre-war British syndicalism see B. Holton, British Syndicalism, 1900-14, Myths and Realities, London, Pluto, 1976. 6 A.J. Penty, Restoration of the Gild System, London, Swan and Sonnenschien, 1906, p. 7.

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7 S.G. Hobson National Guilds, an Inquiry into the Wage System and the Way Out, London, Bell, 1914, p. 219. 8 Ibid, p. 278. 9 Ibid, p. 5. 10 Ibid, p. 135. 11 Ibid, p. 132. 12 Wm. Morris, ‘Art and the people’ [1883] in M. Morris (ed.), William Morris, Writer, Artist and Socialist, 2 Vols., New York, Russell and Russell, 1966, Vol. 2, p. 383. 13 G.D.H. Cole, ‘Recent Developments in the British Labour Movement’, American Economic Review, 8, 1918, pp. 485-504. 14 G.D.H. Cole, Self-Government in Industry, London, Bell, 1917, p. 24; Cole, The World of Labour, a Discussion of the Present and Future of Trade Unionism, London, Bell, 1917, p. 319. 15 This work also represented ‘a comparative account of the development of trade unionism across the western world’, Stears, ‘George Douglas Howard Cole’ p. 506. 16 See, Carpenter, G.D.H. Cole: An Intellectual Biography, p 44. 17 Cole, Self-Government in Industry, p. 4. 18 Ibid, pp. 112, 53. 19 Ibid, p. 7. 20 Ibid, pp. 7, 197-8; see also The World of Labour, p. ix, my emphasis. 21 Ibid, p. 347. 22 Ibid, p. 210. 23 Ibid, p. xiii. 24 Cole, Self-Government in Industry, p. 117; see also ibid, p. 69. 25 Cole, The World of Labour, p. 386. 26 G.D.H. Cole, Chaos and Order in Industry, London, Methuen, 1920, p. 45. 27 Cole, Self-Government in Industry, p. 151. 28 Ibid. 29 Ibid, p. 22. 30 Cole, The World of Labour, p. 371. 31 Ibid, p. 8. 32 Ibid, p. 383. Encroaching control would provide the workers with an apprenticeship which would prepare them to govern themselves.’ 33 G.D.H. Cole, Labour in the Commonwealth, London, Headley, 1920, pp. 164-5. 34 ‘Only the state as the representative of the community had the right to bring capitalist ownership to an end’, G. Foote, The Political Thought of the Labour Party, 3 r d edition, Palgrave, 1997, p. 116. 35 Ibid, p. 389. 36 Ibid, p. 407. 37 Cole, Self-Government in Industry, pp. 192-3. 38 ‘In The World of Labour he nominated the state as representative of the community, while by the time he came to write Guild Socialism Restated, he proposed consumer associations’, Foote, The Political Thought of the Labour Party, p. 112. 39 Carpenter sees this later stage of Cole’s guild socialism as representing his ‘more original contribution’ to its political economy. ‘In his later guild socialist writings, Cole turned to the consumer and differentiated his needs from politics’, G.D.H. Cole: An Intellectual Biography p. 58. 40 Cole, The World of Labour, p. 214. 41 Cole, Self-Government in Industry, p. 122. As to The World of Labour, Margaret Cole saw ‘the moral of the book’ as ‘syndicalist rather than guild socialist... strongly against the pure doctrine of parliamentary and municipal collectivism as expounded by the Webbs and Shaw’, M. Cole, The Life of G.D.H. Cole, London,

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INTRODUCTION

42 43 44 45 46 47 48 49 50 51

52 53 54 55 56

57 58 59

Macmillan, 1971, p. 74; while, as Wright saw it, ‘in syndicalism, Cole found an industrial doctrine rooted in the conception of active self-emancipation’, A.W. Wright, G.D.H. Cole and Socialist Democracy, Oxford Clarendon, 1979 , p. 24. Cole, The World of Labour, pp. 285, 288. Ibid. Wright, G.D.H. Cole and Socialist Democracy, p. 209. ‘Marx also suffered rough treatment in the History of Socialist Thought’, ibid, p. 232. Carpenter, G.D.H. Cole: An Intellectual Biography, p, 226; Wright, G.D.H. Cole and Socialist Democracy, p. 211. N. Riddell, ‘”The Age of Cole?” G.D.H. Cole and the British Labour Movement, 1929-33’, Historical Journal, 38, 1995, p. 937. N. And J. MacKenzie (eds.), The Diary of Beatrice Webb, 4 Vols., London, Virago, 1985, Vol. 4, 17 May 1924, p. 27. On this see, for example, Cole, The Life of G.D.H. Cole, p. 161. Wright, G.D.H. Cole and Socialist Democracy, p. 144. Ibid, p. 147. Though his formidable literary output did not diminish. Thus ‘the Carnegie Foundation for International Peace invited him to contribute three books to their enormous projected series of studies on war time organisaton…In 1923 these duly appeared, three impressive looking volumes entitled respectively Trade Unionism in Munitions, Labour in the Coal Mining Industry and Workshop Organization…The last-named of which contained a great deal about the shop stewards’ movement’, Cole, The Life of G.D.H. Cole, p. 132. It was in this period too that Cole wrote a series of ‘long monographs on Morris, Keir Hardie, Richard Oastler and Richard Carlile which came out as Fabian biographical tracts’, Wright, G.D.H. Cole and Socialist Democracy, p. 134, and also his Life of William Cobbett, London, Collins, 1927, perhaps his finest work of biography and on a subject with whom he clearly empathised. On this see, for example, Riddell, ‘”The Age of Cole?”’, p. 937. Wright, G.D.H. Cole and Socialist Democracy, p. 106. On this see, for example, ibid, p. 167. It had Ernest Bevin as Chair and Cole as Vice Chair. ‘By the summer of 1931 the N.F.R.B. had already set up three wide-ranging inquiries. In order to study all aspects of economics, international affairs and the political system’, Riddell, ‘”The Age of Cole?”’., p. 948. These had an influence on subsequent Labour Party policy documents such as For Socialism and Peace, 1934 and Labour’s Immediate Programme, 1937. G.D.H. Cole, The Next Ten Years in British Social and Economic Policy, London, Macmillan, 1929, pp, 71, 72. Ibid, p. 108. G.D.H. Cole, Monetary Systems and Theories, London, 1942, p. 26; though Cole could seem to blow hot and cold on Keynes throughout the 1930s there can be no doubting the underlying respect for his theoretical contribution. His review of the General Theory in the New Statesman described it as ‘the most important theoretical writing since Marx’s Capital’ and as effecting a revolution in economic orthodoxy which would ‘sooner or later cause every orthodox text-book to be fundamentally rewritten’, G.D.H. Cole, ‘Mr Keynes beats the band’, New Statesman, 15 February, 1936. He also responded positively to Keynes’s Times articles on How to Pay for the War, 1939-40, see R. Toye, The Labour Party and the Planned Economy, 1931-51, Woodbridge, Boydell, 2003, p. 99. He also eventually came to accept that deficit financing might be a necessary prerequisite for the stimulation of economic activity. As he wrote in How to Obtain Full Employment, 1944, ‘it is better in bad times to lower taxation, so as to give private citizens more money to spend, and to meet some part of public expenditure by incurring

24

INTRODUCTION

60 61 62 63 64 65 66

67 68

69 70 71 72

73 74 75 76 77 78

79 80 81 82 83 84

budget deficits’, G.D.H. Cole, How to Obtain Full Employment, London, Odhams, 1944, p. 18. The Next Ten Years, p. 183. Ibid, p. 202, my emphasis. Ibid, p. 411. G.D.H. Cole, Principles of Economic Planning, London, Macmillan, 1935, p. 213. Cole had of course already advance the idea of a National Labour Corps in 1929, see Carpenter, G.D.H. Cole: An Intellectual Biography, p. 137. G.D.H. Cole, Practical Economics, London, Penguin, 1937, p. 254. There was reference here also to the success of the employment-generating consequences of the Swedish public works programme. For a fuller discussion of this and other aspects of Cole’s macroeconomic thinking in the 1930s see N. Thompson, Political Economy and the Labour Party, the Economics of Democratic Socialism, 2 nd edition, London, Routledge, 2006, pp. 103-107. Cole, The Next Ten Years, pp. 226, 246. Cole, Principles of Economic Planning, p. 208. As one commentator has put it, ‘Cole saw banking, monetary policy and especially the trade cycle as capitalist economics. For socialist economics he viewed planning and capital supply as the central questions which arose from the need to organise production in the socialist state’, E. Durbin, New Jerusalems, the Labour Party and the Economics of Democratic Socialism, London, Routledge & Kegan Paul, 1985, p. 117. Ibid, pp. 217-8. Cole, Monetary Systems, pp. 20, 21. G.D.H. Cole, What Everybody wants to know about Money, London, Gollancz, 1933, p. 512. D. Ritschel, The Politics of Planning, the Debate on Economic Planning in Britain in the 1930s, Oxford, Clarendon, 1996, p. 99. As Ritschel has pointed out ‘much of the group’s [SSIP’s] first year was spent in attempts to define and distinguish a specifically socialist form of planning In Cole’s words SSIP “set out to capture the cry of planning for the Labour Party”, ibid, p. 98. See below, pp. 19-20. Considerable research effort was put by the New Fabian Research Bureau into the different forms which social ownership and control could take, see Durbin, New Jerusalems, p. 122. Cole, Principles of Economic Planning, pp. 331. Ibid, pp. 336, 338. Ibid, p. 339. In this period as one commentator has pointed out, Cole ‘pointed to [the need for] more professional expertise in the civil service, greater Cabinet co-ordination and less reliance on Parliament, as among the ways to forward a socialist Britain’, M. Taylor, ‘Labour and the constitution’ in D. Tanner, P. Thane and N Tiratsoo (eds.), Labour’s First Century, Cambridge, Cambridge University Press, 2000, p. 159. Cole, The Next Ten Years, p. 136. This was certainly the case with the conduct of the financial sector. Thus ‘the administration of a bank is the affair of experts who give their whole time to mastering the intricacies of banking policy’, ibid, p. 242. Cole, The Next Ten Years, p. 129. Ibid, p. 131. Ibid, p. 143. Ibid, pp. 414, 152, my emphasis. In any case, as one commentator has put it, for Cole, ‘a socialism which was only prepared to tinker with capitalism would succeed in eroding capitalist efficiency without replacing it with anything else’, Wright, G.D.H. Cole and Socialist Democracy, p. 165.

25

INTRODUCTION

85 G.D.H. Cole, The Principles of Socialism, London, Socialist Society for Inquiry and Propaganda, 1932, pp. 9, 8. 86 Cole, Principles of Economic Planning, p. 405 87 G.D.H. Cole, How to Obtain Full Employment, London, Odhams, 1944, p. 15. 88 Cole, Practical Economics, p. 216. 89 G.D.H. Cole, The Intelligent Man’s Guide through World Chaos, London, Gollancz, 1933, pp. 614-15. 90 G.D.H. Cole, ‘A short tract for the times’, Economic Tracts for the Times, London, Macmillan, 1932, p. 5. 91 Cole, Principles of Economic Planning, p. 220. Cole also ‘doubted whether existing market forces could be trusted to decide which countries should produce what goods’, A. Booth, ‘How long are light years in British politics? The Labour Party’s Economic Ideas in the 1930s’, Twentieth Century British History, 7, 1996, p. 17. 92 Ibid, p. 164. 93 Cole, ‘The abolition of the wage system; in Economic Tracts, p. 261, my emphasis. 94 Cole, Practical Economics, p. 34, my emphasis. 95 Cole, Principles of Economic Planning, p. 317. 96 Ibid, p. 235. 97 Ibid, p. 318. 98 Ibid, p. 313. 99 Ibid, p. 326; Cole, Practical Economics, p. 20. 100 G.D.H. Cole, ‘World economic outlook’, in Economic Tracts, p. 145. 101 ‘Where monopoly tends to replace competition, it is apt to prefer restriction to plenty, because the highest profit can be secured by limiting supplies in order to maintain prices’, Practical Economics, p. 20. ‘Sectionally planned capitalism is thus, in the great majority of cases restrictive in its use of the available sources of production’, Cole, Principles of Economic Planning, p. 199. 102 Ibid, p. 226; a view he continued to adhere to in the post-war period. 103 On this see, for example, Thompson, Political Economy and the Labour Party, pp. 126-29. 104 Cole, Principles of Economic Planning, p. 190. 105 Ibid, p. 228. 106 Ibid, p. 229. 107 Cole, The Life of G.D.H. Cole, p. 57. 108 Toye, The Labour Party and the Planned Economy, p. 41. 109 Wright, G.D.H. Cole and Socialist Democracy, p. 252. 110 Quoted in ibid, p. 252. 111 Quoted in J. Harris, ‘Labour’s social and political thought’ in Tanner, Thane and Tiratsoo (eds.), Labour’s First Century, p. 48. 112 Cole, Practical Economics, p. 25. 113 G.D.H. Cole, ‘The debacle of capitalism’ in S.D. Schinahausen (ed.), Recovery through Revolution, New York, 1933, p. 41. 114 R. Crossman, ‘Socialist values in a changing civilisation’, Fabian Tract, 286, London, 1950, p. 11. 115 See, most obviously, Crosland’s The Future of Socialism, 1956 and for other writers see, for example, Thompson, Political Economy and the Labour Party, pp. 147-49. 116 R. Jenkins, ‘Equality’ in M. Cole and R. Crossman (eds.), New Fabian Essays, London, Turnstile, 1952, p. 72. 117 G.D.H. Cole, Is this Socialism? London, New Statesman, 1954, foreword 118 G.D.H. Cole, Socialist Economics, London, Gollancz, 1950, p. 49. 119 Ibid, p. 47. 120 Ibid, p. 50.

26

INTRODUCTION

121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143

Ibid. Cole, Is this Socialism? p. 21. G.D.H. Cole Why Nationalise Steel? London, New Statesman, 1948, p. 3. Ibid, p. 4. Cole, The British Labour Movement, p. 13. Cole, Why Nationalize Steel? p. 5. Ibid, p. 29. Ibid, p. 44. Ibid, pp. 38-9. Cole, The British Labour Movement, p. 15. G.D.H. Cole, What is Wrong with the Trade Unions? Fabian Tract 301, London, Fabian Society, 1956, pp. 15-16. Ibid, pp. 6, 21. Ibid, p. 26. Cole, The British Labour Movement, pp. 19-20. M.B. Reckitt, The Guildsman, June 1919. A. Briggs, Listener, 20 th October 1960. Wright, G.D.H. Cole and Socialist Democracy, p. 274. Of significance here was the work of the Institute for Workers’ Control and the increasing influence of the New Left, see Thompson, Political Economy and the Labour Party, pp. 200-203. G. L. Houseman, G.D.H. Cole, Boston, Twayne Publishers, 1979, p. 113. Ibid, p. 114. Ritschel, The Politics of Planning, p. 339. Houseman, G.D.H. Cole, p. 124. Cole, Life of G.D.H. Cole, p. 10.

27

Price 6d.

UNEMPLOYMENT AND

INDUSTRIAL MAINTENANCE BY

G. D. H. COLE.

1921 PUBLISHED FOR

T H E NATIONAL GUILDS

LEAGUE

BY

T H E LABOUR PUBLISHING Limited,

COMPANY,

6, TAVISTOCK SQUARE, LONDON, W . C . I .

Unemployment and Industrial Maintenance. A S U M M A R Y OF P O I N T S . Under capitalism, goods are produced, not because they are needed, b u t because the capitalist hopes to make a profit out of t h e i r production. When there is no prospect of profit, the capitalist does not order goods to be produced, however great the need for them m a y be. The worker's prospects of employment therefore depend upon the capitalist's prospects of profit. In other words, although the capitalist poses as the ''riskt a k e r " of industry, he really throws the greatest risk of all— —unemployment—upon the worker. The worker only receives wages when he is actually employed. If there is not enough work for h i m , he gets either no wages (unemployment) or less wages (short t i m e ) . Capitalism does not recognise t h a t the worker has any rights in the industry he works in, except the right to wages when he is actually a t work. B u t the product of industry is the product of the workers' labour, and he has a right to continuous maintenance out of the product of his industry. T h a t is, the worker should get his pay week in and week o u t , whether or not the capitalist makes continuous use of his labour. Industrial maintenance would at once improve the worker's s t a t u s , and give him a sense of greater security and freedom. I t would a t the same time stimulate higher production a n d , by raising the purchasing power of the workers, enable them to buy the additional goods produced. I t would also lower prices. In certain industries, the workers have already taken the first steps towards establishing the principle of industrial maintenance . The Building Guilds are based upon this principle. T h a t is one of the reasons why they are being fought so hard by the Government and the employers. The workers in other industries can, if they will, follow the example set by the Building Guilds. B u t , as Guilds cannot yet be established everywhere, they must demand industrial maintenance from their capitalist employers. Any acceptable scheme of industrial maintenance must be based on the following principles:— (a) I t must give the workers continuous pay at the full standard rate. (b) I t must be administered entirely by the workers through their own Trade Unions. (c) I t must be free of all conditions which might hamper t h e workers in gaining full control of industry I t is YOUR business to work out a scheme your own industry and your own U n i o n .

2

On J u n e 17th, 1921, there were 2,028,400 adults registered as " o u t of w o r k ' 5 on the books of the E m p l o y m e n t Exchanges. If to these are added the unemployed who were not so registered. t h e t o t a l number out of work a t t h a t t i m e certainly cannot be p u t a t less t h a n 2,500,000. This means t h a t a t least 7,500,000 people found themselves deprived of their ordinary means of livelihood, and left, either without resources a t a l l , or dependent on t h e ' ' c h a r i t y ' ' of the State unemployment p i t t a n c e , eked out in some cases b y Trade Union benefits, and by t h e spending of t h e scanty savings of a life-time. The a m o u n t of misery, of semi-starvation, and of degradation of status and loss of self-respect which those facts involve is past c o m p u t a t i o n . I n other countries, much the same conditions existed a t t h e same d a t e . I n every capitalist nation, many thousands were vainly seeking work, and those who were in employment were wondering when their t u r n for dismissal would come. W h y were all these persons out of work? N o t because t h e y were shirkers; for they were vainly seeking for work, and could not find i t . N o t because no one had need of their skill and of t h e useful products which they might have been producing; for t h e whole world was crying out in vain for goods, and all t h e economists were busy proving t h a t the workers of t h e world did n o t produce enough wealth to go round. There a r e , of course, special causes, mainly international in character, which account for much of the abnormal u n e m p l o y m e n t of t o - d a y . Our rulers, after the world has been wasted with years of war, have spent years more, not in healing t h e sores which war has left, b u t in preventing, by the " p e a c e " which they have made and b y their attempts to strangle t h e economic life of both Germany and Russia, any effective recovery of i n t e r national t r a d e . In seeking t o punish Germany and t o destroy the power of t h e Soviets in Russia, they have realty punished t h e British workers, who depend for their livelihood under capitalism on the maintenance of foreign t r a d e . ''Reasons of S t a t e ' ' have thus m a d e t h e internal situation of this country far worse t h a n i t need have been if a real a t t e m p t had been made t o restore t h e peace of E u r o p e . B u t " r e a l p e a c e " is a state unknown to capitalism, which ceaselessly breeds economic rivalries and seeks t o prevent international co-operation. A t bottom, the reasons for t h e abnormal unemployment of 1921, and the reasons for t h e normal u n e m ployment which is recognised as a regular feature of t h e present industrial s y t e m , lie in t h e nature of t h a t system itself. F o r i t is a plain fact t h a t the existence of a mass of persons wanting work on t h e one h a n d , and of a mass of persons clamouring for goods and services on t h e other, is not regarded, in t h e world of capitalist economy, as a t all a sufficient reason why those who want work should be given an opportunity of supplying t h e needs, however pressing, of those who want goods and services.

3 Production for Profit. F r o m the standpoint of capitalist economics, the question of human wants is irrelevant. I t is true t h a t t h e capitalist does not order the production of goods which he does not expect t h a t he will be able t o persuade somebody t o b u y ; b u t it is also true t h a t he would be both pained and surprised if it were suggested t o him t h a t his job was t o produce those things which men most need, without regard to their ability t o p a y . Indeed, under t h e capitalist system, he could not do so even if he would; for h e has to reckon, not only with competitors a t home and abroad, b u t also w i t h shareholders and financiers whose sole interest in h i s business is to extract from it the m a x i m u m return for themselves. The individual employer is a helpless instrument of the system in which he is involved; and it is t o the system, and not to t h e sinfulness of particular employers, t h a t the evil is to be t r a c e d . B u t , wherever t h e blame may rest, the fact is plain enough. T h e sole reason for production which is recognised in the capitalist system is t h a t a profit can be realised. And it is the system of production for profit only t h a t interposes a barrier between those who w a n t work and those who w a n t the goods and services these workers could provide. There was a t i m e when the system of production for profit was confidently defended on the ground t h a t t h e best test of t h e usefulness of a product or service was the price men were ready t o pay for i t , and t h a t therefore he who made most profit for himself was best serving the common interest. I t was said t h a t t h e contrast between "production for profit" and ''production for u s e " was a false contrast, and t h a t the two really coincided in this best of all possible economic systems. This argument can still be heard in the mouths of business men and economists; b u t it has lost the old confident r i n g . I n face of the fact t h a t t h e system of production for profit often means no production a t all, and results in t h e normal existence of a huge mass of unemploym e n t in every industrialised community, it is impossible t o contend t h a t this method really succeeds in satisfying human n e e d s . The worker is a t once a producer and a consumer. H e depends for his income, t h a t is, for his ability t o consume, on finding someone who will employ him and p a y him wages. If he can find no one to employ h i m , his ability to consume ceases, except in so far as he is saved from starvation by his Union or by a State dole. B u t the fact t h a t his wages stop does not lessen b y one iota his needs or those of his dependents. H e still needs j u s t as much food, w a r m t h and clothing: he still needs a house over his head and t h e ability t o keep his household goods together. If these needs go unsatisfied in t h e case of a single worker, there is a manifest sign of t h e failure of production for profit to correspond t o production for u s e .

4

Only S e m i - S t a r v a t i o n . Gradually, there has been extorted from the State a small measure of recognition of the responsibility of Society towards t h e worker. Nowadays, the unemployed are not normally left quite to starve. They are chastised with the whips of semistarvation, b u t t h e scorpions of utter starvation are not usually a p p l i e d . I t is not necessary to attribute this " m o d e r a t i o n " wholly to the growth of a disinterested benevolence on the p a r t of t h e ruling classes; for it is clearly due very largely to the growth in the power of the working-class movement, and to the fear of the rulers t h a t starvation may mean revolt. Whatever its cause, it remains still a miserably inadequate provision, and does not save the worker from a sudden and disastrous degradation in his standard of life as soon as he loses his j o b . This degradation of the life-standard of the workers always accompanies the growth of unemployment. But note the fact, t h a t , unless the worker and his dependents are to starve u t t e r l y and die, someone must support t h e m , however miserably, when no wages are available for t h e m . The employer does not do t h i s . H e employs the worker when he can make a profit out of t h e use of his labour: b u t , as soon as there is no profit to be m a d e , he flings the worker into the street. The State and the Trade Union then step i n , and provide bare subsistence u n t i l some fresh employer, seeing a prospect of profit, consents to take the worker on. What i s a " R e s e r v e of L a b o u r , " Think what this means. The employer only pays the worker for t h e t i m e during which he actually employs h i m . H e can work his staff " s h o r t t i m e , " and so cut down their earnings below any reasonable subsistence level. He can " s t a n d t h e m off," and so deprive them of their incomes altogether, u n t i l he wants them again. B u t , all the t i m e , he expects the worker to be ready and waiting for employment. H e cuts down his staff to-day and expands it to-morrow, according as he expects the greater profit from higher or lower production. And i t is the worker's business, where there is no work for h i m , t o w a i t patiently a t t h e factory gates and register at t h e E m p l o y m e n t Exchange, until the employer wants him again. T h a t t h e worker should do this is essential to the maintenance of t h e capitalist system. These unemployed workers are the "reserve of l a b o u r , ' ' upon which capitalism relies. Who i s to P a y for It? In other words, the unemployed worker is just as much a p a r t of the necessary personnel of capitalist industry as the worker who is actually employed. The employer cannot do without h i m ; b u t he repudiates all responsbility towards h i m . Is this

5 r i g h t ? The wages paid to the workers who are employed r a n k , according t o capitalist econmics, as an element in the "cost of p r o d u c t i o n . " B u t what about t h e wages which are not paid t o t h e workers who are unemployed ? If these unemployed workers are a "reserve of l a b o u r " t h a t is necessary to capitalism, ought not t h e payment of wages to them to be recognised as an element in t h e cost of production j u s t as real as the wages which the employer pays to-day! Guild Socialists have always contended t h a t it o u g h t . They have demanded t h a t every worker who is prepared to do service in an industry necessary to the public shall be assured of continuous p a y a t the expense of t h a t industry. This is the system of " i n d u s t r i a l m a i n t e n a n c e " which h a s always occupied a prominent place in the propaganda of Guild Socialism. We m a i n t a i n t h a t t h e present system enables t h e capitalist to evade one of his most v i t a l obligations, and to m a k e profits out of the labour of t h e workers before he has met the real cost of producing t h e goods which he sells. This real cost includes the continuous maintenance b y the industry of the whole body of workers in i t . B u t , by paying the workers nothing when they are unemployed or "standing-off," as well as by docking their pay when they are on short t i m e , t h e employer makes t h e m p a y , with such assistance as they can get from the S t a t e , a considerable p a r t of the cost of production which it is his business t o meet before there is any profit for him to appropriate. Maintenance an Industrial R i g h t . There is a big difference between this demand of the Guild Socialists and t h e claim which is often put forward t h a t t h e u n employed workers should be maintained a t the expense of t h e S t a t e . I t is upon industry directly, and as an essential p a r t of t h e cost of production t a k i n g precedence over all claims to profit, t h a t we hold the charge of maintaining t h e unemployed must fall. I t is not a State charity t h a t we are demanding, b u t an industrial right, a plain recognition t h a t the workers in an industry have a claim to continuous maintenance out of the product of their common labour. The recognition of this principle would a t once enhance enormously the status and self-respect of the workers. N o t only would it give t h e m t h a t measure of economic security without which no real social or industrial freedom can possibly be enjoyed: it would give them t h i s security as a right derived directly from their position as workers, t h a t is, from their will and ability to do useful work. I t would t h u s give t h e m an assurance of possessing a recognised social s t a t u s , a sense of t h e i r share in t h e common inheritance of Society, and in the functioning of t h e industry through which t h e y serve t h e c o m m u n i t y . State maintenance would inevitably give to t h e worker a sense of dependence: industrial maintenance would give him a sense of freedom. If I belong t o m y industry, he would be able t o s a y ,

6 so does m y industry belong to m e . And t h e belonging in both cases would have a close and definite relation t o t h e idea of service. Short T i m e and Shorter H o u r s . Consider, for example, the effect which the adoption of industrial maintenance would have on t h e question of " s h o r t t i m e . " A t present, when the worker is p u t on " s h o r t t i m e , " he loses an equivalent proportion of his earnings: under a system of maintenance his pay would continue even if full t i m e work could not be found. This would, in the first place, give t h e employer a very excellent reason for so organising t h e factory as to make more continuous production possible; a n d , in the second place, it would enable the problem of a productive power in excess of demand to be met by the rational expedient of shortening the hours of labour, without the burden being flung upon the worker of maintaining himself as best he can during the t i m e of depression. Industrial maintenance must accompny a n y reasonable scheme for "sharing out the w o r k , " or reducing t h e hours of labour so as to absorb any surplus of unemployed. Who " T a k e s the R i s k s ? " I t is commonly urged, as a reason for the maintenance of capitalism and as a justification for the making of private profit, t h a t under the present system the capitalist takes t h e risks of production. No more ghastly lie was ever t o l d . The capitalist risks only his capital, and he usually seeks to cover his risks by a careful distribution of it among a number of different enterprises. The worker, on t h e other h a n d , daily risks his whole livelihood. If South America buys fewer locomotives, t h e value of engineering shares may fall; but the workmen who relied on t h e building of these locomotives for their livelihood lose a t a blow their whole income. Every trade fluctuation reacts upon the workers far more heavily and immediately t h a n upon t h e capitalists. The worker often goes supperless: the employer a t t h e worst need usually do no more t h a n sack his gardener, or dismiss his chauffeur. I t is upon t h e workers t h a t t h e principal risks of industry fall; b u t the workers, though they bear t h e risks, have no share in t h e great gains which frequently fall t o t h e employer. W e are not demanding t h a t t h e workers should share t h e employer's profits, as they now bear the major p a r t of his losses. W e desire t o destroy the whole profit-making system and n o t t o include t h e workers in i t . B u t we do demand t h a t t h e worker, who has no desire t o become a profiteer, should not be made t o bear t h e risks which result directly from t h e profit-making system. W e demand the recognition of the principle of "continuous p a y " for every worker in industry.

7 T h e Result of M a i n t e n a n c e . W h a t would happen if t h i s principle were recognised ? I n t h e first place, t h e employers in a particular industry, treated as a n a t i o n a l u n i t , would have t o reckon into their cost of production t h e payment of continuous maintenance to all the workers in t h e industry, and would be compelled t o make provision for t h i s charge before they could distribute a single penny in profits t o t h e i r shareholders. This m i g h t mean an addition, taking both good and bad years into consideration, of ten per cent, to their wages b i l l , on the assumption, with which we will deal in a m o m e n t , t h a t the change of system did not cause any change in t h e organisation of the i n d u s t r y . I n order to meet this charge, t h e employers would have t o p u t aside, in good years, sums which they now distribute in high dividends to their shareholders, or allot to open or concealed reserve funds which later make their appearance as extra dividends or as bonus shares. A business which now seems to have made ten per cent, profit one year and five t h e n e x t , would then be seen, after meeting the legitimate charges upon i t , including t h e charge for maintenance, t o be entitled only to five per cent, in each year. The other five per c e n t . , which the employers now pocket a t the workers' expense, would go t o the maintenance fund of the industry. Stabilising Production. B u t would not the adoption of this system bring about big changes in the organisation of t h e industry itself? At present, especially since the growth of industrial combinations among capitalists, employers are constantly making calculations which involve either an expansion or a restriction of the output of their works. Will i t pay us b e t t e r , they say, to keep prices low and so sell a large quantity of our products, or to raise our prices a t t h e cost of reducing our o u t p u t ? I n making such a calculation, t h e employer acts in strict accordance with current business morality if he adopts t h e course which is the more profitable for himself and for his shareholders. And, with the growth of comb i n e s , there is an ever-increasing tendency, amply illustrated in t h e Report of the Government Committee on Trusts, for the associated employers t o prefer the method of restricting o u t p u t a n d working for an assured, if narrowed, market in which they can sell a t a high price, t o t h e method of extending their production and relying for their profits on a larger turnover at a smaller margin of profit for each commodity sold. Instances are not wanting in which a particular firm is actually paid a handsome compensation by a t r u s t for refraining from production. The growth of the practice of "restriction of o u t p u t ' ' on t h e p a r t of the employers is very relevant to t h e question we are discussing, t h a t of industrial maintenance. For to-day, when a n employer or a combine makes t h e calculation mentioned above, a n essential element in i t is t h e " s a v i n g " of wages which will

8 result from a lowering of production. I t pays t h e employer best t o produce little a t a high selling price, because, if he does so, he can drastically cut down his wages B i l l . H e can sack so m a n y of his workers, and put so many more on short t i m e , and thus escape all liability for their maintenance, and for the havoc in m a n y working-class households which is caused b y his action in ''restricting o u t p u t . " B u t , if the right of these workers to maintenance a t t h e industry's expense is recognised, a t oncet he boot is on t h e other foot. For the employers in t h e industry, if they then decide to restrict output in order t o raise or to maintain prices, are compelled, out of the sums which t h e y receive for the reduced q u a n t i t y of products, to pay the whole wage bill which would have been incurred if the industry had been working u p t o its full capacity. I n these circumstances, it would usually p a y them to increase output even at lower prices rather t h a n to m a i n t a i n in idleness a large proportion of the workers in t h e i n d u s t r y . Industrial maintenance thus offers a direct stimulus t o increased output on the p a r t of the employer. And, as it is t h e organised employers, far more t h a n the organised workers, who restrict t h e o u t p u t of commodities to-day, there is hope in this stimulus of a real increase in the amount of goods available for d i s t r i b u t i o n . Moreover, if the workers are receiving continuous p a y , t h e y will have more money with which t o b u y t h e goods which are produced, and the employer will t h u s more readily find a m a r k e t for t h e increased output of his factory. "Over-prod u c t i o n . " t h a t is t h e production of goods which those who need them have not t h e money to b u y , and " u n d e r - c o n s u m p t i o n , ' ' which is t h e reverse side of the same situation, will t h u s alike be checked, and a more even balance between production and consumption will be established. Will P r i c e s be Higher ? B u t , it m a y be said, will not the effect of " i n d u s t r i a l m a i n t e n a n c e " be t o raise the prices of all commodities, because the employer will simply add the fresh charge imposed upon him t o t h e selling price? During the war. when purchasers were clamouring for far more of almost every commodity t h a n could be made available, this m i g h t have been so; b u t , under normal conditions, industrial maintenance would have rather t h e opposite effect. I t would practically compel the employers t o produce as nearly as possible u p t o the full capacity of their p l a n t , and they would only dispose of t h e commodities so produced b y keeping prices low; for it is well-known t h a t the q u a n t i t y of a commodity for which there is an effective demand grows in proportion as t h e price falls. If, therefore, the employers sought t o recoup t h e m selves b y raising prices, they would be worse off t h a n before; for t h e y would be left with unsaleable commodities on their hands.

9 Or E m p l o y e r s Go Out of B u s i n e s s ? B u t , if this is so, will not t h e effect of " i n d u s t r i a l m a i n t e n a n c e " be even more dire? W i l l it not drive the employer out of business altogether ? Alas, we cannot believe t h a t t h e employers will be so obliging as to abdicate if t h e principle of ''industrial m a i n t e n a n c e " is adopted. W e are not p u t t i n g our proposal forward as an infallible and instantaneous method of ending capitalism, b u t as a means both of greatly improving the status and economic position of t h e workers under capitalism, and of strengthening them for more decisive assaults upon i t . T h e capitalist system, we fear, would be able so to readjust itself as t o incorporate t h e principle of maintenance without thereby involving its own instant dissolution. Profits would, we believe, b e reduced, and t h e self-confidence of t h e workers increased; a n d , when the b a t t l e for emancipation was again joined, it would be joined on terms far more favourable to t h e workers; but there is no scheme—either ours or anyone else's—which, b y a simple reform, will bring the workers straight to the millennium. T h e road to freedom is uphill t o t h e very end. W e are not saying t h a t , if the principle of maintenance were suddenly applied to all industries t o - d a y , the readjustments t h a t would be necessary would be in all cases easy to bring a b o u t . T h e artificial depression in which industry is plunged a t t h e present t i m e , mainly as a result of the suicidal international policy which our rulets are pursuing, has created problems with which some of our industries are helpless b y themselves to d e a l . I t would probably be necessary, out of general t a x a t i o n , t o apply a subvention t o the various industries towards the meeting of t h e maintenance charge during t h e period of readjustment. B u t t h i s does not mean t h a t such a subvention would cost the State as m u c h as t h e inadequate provision which it now makes for t h e unemployed by t h e method of compulsory insurance. Nor does it in any way invalidate t h e general principle. Even if s u b ventions are needed in the early stages, every worker c a n , and should, be assured a t once, from his industry, of t h a t continuous p a y which is both his human and his economic r i g h t . If Capital F i g h t s . B u t , sound as this principle may b e , is there any real chance t h a t it will be conceded ? Will not t h e capitalists, realising t h a t t h i s involves a serious inroad on their profits and also a very great strengthening of t h e economic position and sense of security of t h e working class, use every ounce of strength t h a t they possess in opposing any such concession ? I t may well be t h a t t h e y will do s o ; b u t cannot the same be said of every proposal for change which really offers any prospect of bettering the position of t h e workers? Reforms which leave t h e relative postions of t h e opposing classes in Society unchanged t h e ruling classes m a y , w i t h

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comparative readiness, be induced to accept, b u t a n y proposal t h a t really menaces t h e class-structure of present-day Society i s , we agree, likely t o meet with very strenuous resistence. W e are, however, quite unable to understand why this should be regarded as a reason for not pressing the demand. If we press for nothing t h a t we do not expect easily t o obtain, we shall claim nothing t h a t is worth h a v i n g ; and, if we say t h a t it is not worth while t o press for anything short of complete revolution, because nothing worth having will be conceded without revolution, t h e n , even if the reason is sound, we shall find ourselves without an army t o lead forward t o revolution. We must press for t h e measure which we see t o be necessary in order t o rescue t h e workers from their present degraded condition, whether we believe t h a t it will be hard or easy t o get what we w a n t , A n d , if, in doing so, we find the capitalists obstinately resisting a clearly necessary and justifiable change, because they feel t h a t it menaces their economic supremacy, we shall, at the worst, have found the best possible means of bringing home to t h e minds of t h e workers t h e naked t r u t h about the present economic and social system. A c h i e v e m e n t s to D a t e . W e p u t forward, t h e n , industrial maintenance as one of t h e demands which should be most insistently and immediately pressed by the whole working class movement. Already, in certain instances, t h a t movement has taken a few very hesitating steps towards t h e recognition of the principle. For instance, when the railway workers succeeded in securing the concession of t h e "guaranteed w e e k , " they were winning, not m a i n t e n a n c e , b u t an essential, though small, step towards it which has since stood them in good stead in their opposition to the companies' efforts t o introduce short-time. The dockers, who have suffered as heavily as any section of workers from the evil of casual employment, have a t least won the ''guaranteed d a y . ' ' The miners secured during t h e war t h e concession t h a t the ''war w a g e s " paid to them under State control should be continuous, and should be paid even when the miner was thrown out of work through no fault of his own. And, most important of a l l , in t h e cotton industry during t h e war a special levy was imposed on all employers whose mills were working a t more t h a n a m i n i m u m pressure for t h e p a r t i a l maintenance of those workers who were thrown out of employment b y the restriction of output imposed b y war conditions. Moreover, the partial maintenance t h u s conceded was paid over t o t h e Trade Unions, and administered b y t h e m to all workers who were entitled t o it, Unionists and NonUnionists a l i k e . These are actual steps which have been taken in t h e direction of industrial m a i n t e n a n c e . They fall very far short of t h e full recognition of i t which t h e workers are beginning t o d e m a n d ,

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and in some cases they are only temporary concessions, while in others t h e y are now being destroyed by the employers, who see in t h e growth of unemployment t h e prospect of t a k i n g away from t h e workers even t h a t scanty measure of protection which they now possess. B u t certain Unions have already realised t h e need t o go further, and t o establish a complete system of maintenance for all workers in their industries. The most notable plan of t h i s kind is t h e scheme for t h e industrial maintenance, a t full standard rates of wages, for all workers in t h e waterside transport i n d u s t r y . This scheme, drafted by t h e Transport Workers' Federation, has been placed before t h e port employers, who have been asked t o give effect t o it in fulfilment of the recommendation of t h e Dockers' Court of Inquiry in 1920 t h a t a complete scheme of industrial maintenance for waterside workers should be devised. There m a y well be a stern struggle before the dockers before t h e y can succeed in getting this right recognised; b u t it is a struggle t h a t is far more w o r t h while t h a n most of t h e industrial conflicts in which t h e Trade Unions find themselves engaged. Why the B u i l d i n g Guilds are A t t a c k e d . The v i t a l importance of t h e demand for industrial m a i n t e n ance appears also very clearly in the struggle which has centred round t h e development of the Building Guilds. When t h e organised workers in the building industry determined t o demand t h e right t o serve the public directly, under conditions of full indust r i a l self-government and on a basis which would eliminate all forms of profit, they based their offer t o build a t cost price all t h e houses t h e public required on t h e full recognition of the principle of industrial maintenance. Their own past experience had t a u g h t t h e m t h a t no decency of life or sense of assured status in the community was possible for the building operative under t h e old b a d conditions of casual employment. They therefore insisted, as t h e first condition of their offer, t h a t every worker for t h e Building Guilds should be assured of continuous p a y , in rain or shine, in employment or in unemployment. W i t h considerable difficulty, the recognition of this principle was secured in t h e Guild contracts which were a t length accepted by local authorities and sanctioned by t h e Ministry of H e a l t h . B u t t h e employers, who a t first regarded t h e idea of the workers organising a selfgoverning service of their own as a wild-cat scheme which would certainly break down, soon changed their t u n e when they found t h a t t h e Guilds, after meeting the cost of industrial maintenance, were building houses for the people a t far less t h a n t h e prices which t h e employers were seeking t o exact. They then brought all their force to bear for t h e purpose of smashing the Guilds, a n d they induced t h e Ministry of Health to refuse t o sanction any further Guild contracts. The point round which this contest between the building workers on the one hand and t h e employers and t h e capitalist

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Government on the other centres is, simply and solely, industrial maintenance. The employers protest t h a t t h e Guilds must n o t be allowed t o give continuous pay to their workers, because t h e y realise t h a t the concession of continuous pay changes t h e s t a t u s of t h e worker, and t h a t , if t h e principle is accepted in one p a r t of t h e industry, they will not be able t o resist its application t o t h e industry as a whole. They know t h a t the power of capitalism depends on keeping t h e worker in a permanent condition of insecurity and subjection, and they rightly see in t h e rise of the Building Guilds, based on the principle of industrial maintenance, a challenge to the whole-class-system of capitalist production. T h a t is all the more reason why t h e organised workers should both rally t o t h e Building Guilds in their endeavour t o establish the principle of industrial maintenance, and seek, b y t h e methods most convenient in each industry, t o apply t h a t principle throughout t h e whole world of Labour. Why not Guilds for Public Work? I t is for the workers in each industry t o work out their own detailed plan of action, while it is for the whole working class t o stand solidly united in support of t h e plan which t h e workers in each industry devise t o meet their own case. I n some instances, it will be possible for t h e workers to give a strong impetus to t h e demand for industrial maintenance by following t h e good example which t h e Building Guilds have set. There is a great mass of public work, in addition to house-building, which could be carried o u t , with huge saving to the public and with greatly inproved conditions for t h e workers, if the Trade Unions in t h e industries concerned would form Guilds there also and offer their service t o t h e public on the same terms as those under which t h e Building Guilds are now a t work. These terms are production for t h e public a t cost price, carried out under conditions of full democratic self-government and with recognition of t h e principle of industrial maintenance. W h y should not all road-making, bridge-building, afforestation, and indeed every form of public work be carried out under these conditions ? The sole reason why this is not t h e vital issue of the hour is t h a t the workers concerned in these services have not y e t , like the building operatives, come forward w i t h a definite offer, and compelled the public to accept it by a convincing demonstration of t h e superiority of industrial democracy t o capitalist profit-mongering. If t h e workers would realise t h e opportunity which lies open to them here, they could a t once threaten t h e dominance of capitalism b y showing their ability to organise industry on a better basis. Of course, these offers of service would not be readily accepted, any more t h a n the Building Guilds are now finding t h e road t o industrial emancipation made smooth for their feet. Capitalism is interested, not in serving t h e public well, b u t in making profits; and any p l a n t h a t menaces profits will be vigorously opposed,

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^whatever manifest benefits it m a y offer t o the public. B u t here again is only a reason t h e more for the working-class t o press its demand with all its force. For what it will be demanding will b e simply the right t o use its skill and organising ability in t h e public service, and not for t h e profit of t h e ruling class. T h e fact t h a t there will be determined opposition from the capitalists and the Government which serves capitalism means, not t h a t it is useless t o make t h e d e m a n d , b u t t h a t it must be backed b y t h e whole power of t h e Trade Union Movement, and t h a t , in exerting its strength t o break t h e capitalist resistance, L a b o u r m u s t make the whole community understand t h a t the right which i t is seeking t o enforce is t h e right of service. D e m a n d Full M a i n t e n a n c e . Besides t a k i n g action on t h e lines indicated by t h e example which the Building Guilds have set, the workers must make t h e demand for industrial maintenance from the capitalist employers. T h e scheme proposed by t h e Transport Workers' Federation is a n instance of the way in which this demand can be formulated, and every Union, no m a t t e r w h a t its industry, ought to formulate a similar scheme, varying t h e precise details according t o t h e character and circumstances of t h e industry. B u t in no case ought the workers to stand for less t h a n t h e principle of full indust r i a l maintenance—that i s , continuous pay a t the standard r a t e in periods of unemployment as well as of employment, and when short time is being worked as well as when they are busy for a full week. W h a t t h e worker w a n t s , and w h a t he has a right t o d e m a n d , is the banishing for ever of the economic insecurity which a t present makes a mockery of the claim t h a t he is ' ' f e r e . ' ' H e demands, for t h e sake of his wife and children as well as for h i m self, an assured and recognised status in t h e community, and t h a t s t a t u s he can only have when his right, as a worker, to continuous maintenance out of the product of industry is fully conceded. W h e n t h e workers fight for t h e recognition of this principle, t h e y are fighting for a fundamental human and economic r i g h t . T h e wage-system, which depends on keeping the worker in a condition of permanent and degrading insecurity, is no less a form of slavery t h a n t h e chattel-slavery which it has replaced. And there is no way of ending t h e wage-system, or of securing for t h e workers real freedom, t h a t is not based upon the recognition of t h e right to maintenance and economic security for every worker. Trade " f l u c t u a t e s " now, and workers are periodically condemned t o unemployment and a t best semi-starvation, n o t b e cause these fluctuations are necessary or because h u m a n needs v a r y greatly from t i m e t o t i m e , b u t because of an economic system throughout t h e world of capitalism which is based on t h e principle of production for p r i v a t e profit. There is no royal road t o freedom which does not involve t h e utter destruction of t h a t system; b u t is not the first step on the right road a firm insistence

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b y t h e workers on their right to continuous maintenance out of t h e fruits of industry? Will not the demand, strongly enough m a d e , do more t h a n any other to compel a fundamental re-makingof t h e economic system ? Guild Socialists believe t h a t it w i l l ; and t h a t is why they place it in the forefront of their immediate programme. A d m i n i s t e r e d by Trade Unions Alone. There are certain points which it will be essential to safeguard in any scheme for t h e adoption of industrial maintenance which the Trade Unions in the various industries m a y p u t forward. The most vital point is t h a t of Trade Union administration. Any scheme of industrial maintenance t h a t is t o be of use t o t h e workers must be administered completely through t h e Trade Union organisations. If t h e employers or the State were allowed to administer, or t o have a hand in administering. a scheme of this sort, there would be manifest dangers t h a t the independence of t h e workers might be undermined, and t h a t industrial m a i n t e n ance, instead of proving a n important step on the road t o indust r i a l freedom, might result in a security which would subject the workers, even more than to-day, to capitalist domination. The workers must therefore insist t h a t all forms of industrial maintenance shall be administered by the Unions, and t h a t t h e sums levied upon the various industries in order to provide m a i n tenance shall be handed over to the Unions for distribution among t h e workers. There is nothing impracticable in this proposal; for this was t h e course actually adopted in the cotton industry during the w a r . The cotton Trade Unions during t h e war d i s pensed t h e benefits provided under the Cotton Control Board, not only to their own members, but also t o t h e non-Unionists employed in t h e industry. The workers must insist t h a t this shall be the case with any scheme of industrial maintenance t h a t is accepted. Control the E x c h a n g e s . Not only m u s t t h e Unions administer unemployment benefit, t h e y must also, if they are to make this administration effective, secure complete control over the working of t h e E m p l o y m e n t Exchanges. The Exchanges should be, as they have been in some other countries, notably in France, not State organisations, r u n b y bureaucrats, subservient to the employers' interests, b u t institutions completely administered by the Trade Unions t h e m selves, which would thus secure an effective control over t h e supply of labour. Such a change in the organisation of the E x changes would be t h e natural accompaniment of t h e adoption of a scheme of maintenance on the lines proposed. N o C o n c e s s i o n s to the E m p l o y e r s . I n t h e t h i r d place, t h e workers must resist a n y a t t e m p t which

15

may be made by the employers or the State to grant industrial maintenance only under restrictive conditions which would hamper the freedom of Trade Union action, or stand in the way of t h e assumption by the workers of an increasing control over industry. The employers have sometimes p u t forward schemes for the p r o vision of unemployment pay on an industrial basis, coupling w i t h this proposal t h e demand for concessions from t h e workers, such as t h e acceptance of p a y m e n t by results, t h e abolition of all so-called "restrictions on o u t p u t , " or t h e abandonment of t h e demand for control. Needless t o say, no such conditions can be tolerated by the working-class movement. Maintenance is demanded as a right, and as a legitimate charge upon the i n d u s t r y , and not as a benefit to be conferred in return for concessions which t h e workers can be called upon t o make in other directions. Indeed, one of the main arguments in favour of industrial m a i n tenance is t h a t , if it is adopted in t h e form which is suggested in this p a m p h l e t , so far from retarding t h e development of workers' control in industry, it will be a very material help towards i t . I t will aid greatly in the decasualisation of labour, and every worker knows t h a t casual labour is one of t h e great obstacles in t h e w a y , both of any improvement of the immediate economic position of the workers, and of t h e pushing of t h e demand for effective control in industry. Industrial maintenance will compel a re-organisation of the various industries, which will e l i m inate casual labour. The Labour Movement has long recognised t h a t decasualisation is an essential step towards any improvement in t h e status of the worker; and t h e close connection between t h e decasualisation of industry and industrial maintenance m u s t be fully recognised. A Step T o w a r d s Better O r g a n i s a t i o n . Moreover, industrial maintenance, in bringing about d e casualisation and a better organisation of the various industries, should also give a powerful stimulus to the movement for i m proved Trade Union organisation. I t will drive all the workers engaged in the various industries together, and will in t h a t w a y give a new impetus t o t h e movement for Union b y industry. A t t h e same t i m e , i t will necessitate close working arrangements between industries, and will in t h a t way stimulate closer comb i n a t i o n among t h e various industrial Unions which it will help t o create. Guild Socialists have always recognised t h a t U n i o n b y industry, in so far as it can be brought about in face of t h e present chaos of Trade Union organisation, is a necessary step towards control; and this furnishes another instance of t h e close connection between t h e propaganda of control and industrial maintenance. All these points will have to be borne in m i n d b y t h e workers in any particular industry, when they are drawingu p a scheme t o suit their own particular case.

16 One or All ? B u t will industrial maintenance come about through separate schemes, forced b y t h e workers upon the employers in t h e various industries, or, in a more comprehensive way, through legislation, imposing the obligation of maintenance upon every i n d u s t r y ? I t will be far better if it comes about in the latter w a y ; for w h a t is wanted is not t h a t the workers in a new particular industries should establish t h e right for themselves, while leaving t h e workers in other industries in their present position of economic insecurity, b u t t h a t t h e obligation of maintenance should be imposed immediately throughout the whole range of industries and services. The workers, however, will have t o t a k e things as t h e y find t h e m , a n d , if one industry is able to establish t h e principle of maintenance before the workers as a whole are able t o enforce a universal scheme for all industries, it should b y all means do so, provided t h a t the scheme which it adopts is one which will fit in w i t h a general system when t h e t i m e comes for the universal application of the principle. The a d o p t i o n , under such conditions, of industrial maintenance in one or two industries would, indeed, probably serve as a very material help in securing its further extension throughout the whole range of industry. T h e S i m p l e R i g h t of the Worker. The workers are sick of doles and charity, b y whatever name they m a y be called. They are sick of going cap in hand t o t h e State in order t h a t it may protect them from s t a r v a t i o n ; for t h e y know t h a t the Government is a faithful servant of capitalism, and will succour t h e m only enough to prevent t h e m from revolting and t o preserve their lives for future exploitation. They are seeking, not a charity, b u t the recognition of a r i g h t , a n d , if capitalism cannot, or will n o t , concede t h a t r i g h t , it is n o t t h e workers, b u t capitalism itself, t h a t must give w a y . The right of which t h e workers demand the recognition is s i m p l e : it is merely t h a t , when a m a n is willing to work at his t r a d e for t h e public service, t h a t t r a d e shall be so organised as t o find for h i m work t o d o , or, if it fails in t h i s , shall pay him t h e income t o which he is entitled as a willing worker. The State bond-holder gets his interest regularly, though he does no service for i t . Shall n o t t h e worker, who is prepared to do his d a y ' s work, get his income regularly t o o ? To deny him this is to treat h i m , not simply as an inferior being, b u t as a mere commodity, a t h i n g w i t h o u t rights—in fact, a slave. Chattel-slavery has been abolished : now it is wage slavery's t u r n to go. And a necessary step towards its destruction is t h e recognition for all workers of t h e r i g h t t o continuous maintenance out of the product of their common service.

S.S.I.P STUDY GUIDES. No. 6.

THE PRINCIPLES OF SOCIALISM BY

G. D. H. COLE

ISSUED BY

T H E S O C I E T Y FOR S O C I A L I S T INQUIRY A N D PROPAGANDA PRICE TWO PENCE

The Society for Socialist Inquiry and Propaganda Chairman : E . BEVIN

Extract from the Rules. " T h e Society consists of Socialists, who are individual members of the Labour Party, or of such members of bodies affiliated to or associated with it as are not members of any other political party ; the object is the development and advocacy of a constructive Socialist Policy. With that object it may (a) Promote and carry on research, discussion and propaganda. (b) Undertake, promote and support the preparation and publication of pamphlets, books, reports, newspapers and the like. (c) Organise and carry on conferences, meetings, lectures and schools. (d) Promote and support any Socialist activity. (e) Constitute and appoint sub-groups, local branches and committees. Each member shall pay annually such subscription as he or she can reasonably afford. The minimum subscription shall be live shillings annually." It is believed that a really practical Socialist policy, which is intended to cover the next ten or twenty years of development, cannot be worked out unless the keen Socialists in the country give their brains and time to thinking it out in co-operation. With this object in view, local branches are being founded throughout the country both to investigate local problems, and also to criticise and work out wider lines of policy. The Society states emphatically that it has no intention of forming a rival influence within the party : indeed its supporters include members of the late Labour Government who realise the necessity for fresh and constructive thinking. Applications for membership are invited, and further information can be obtained from the Secretary, E. A. Radice, 23, Abingdon Street, London, S.W.I,

THE PRINCIPLES OF SOCIALISM

The Principles of Socialism By

G. D. H. COLE.

NOTE.—This Study-Guide is only intended as a very general introduction. It should be supplemented by other Guides dealing in more detail with particular points, e.g., Number 4, The Socialisation of Banking ; Number 5, How Capitalism Works. See full list of Study Guides obtainable from the Society for Socialist Inquiry and Propaganda, 23, Abingdon Street, London, S.W.I. I WHAT IS SOCIALISM? Questions for discussion : 1. Is Socialism only an economic doctrine, or is it based on notions of human rights and duties ? 2. Should labour be compulsory under Socialism, and, if so, in what sense ? Socialism is not only a method of organising production and distribution, but also an attitude to life. It is based on a deeply rooted belief in economic and social equality, both for its own sake and as the necessary condition of a stable and prosperous economic system. Socialists set out to abolish class-distinctions, and to reorganise production and distribution so as to secure the use of the common resources of Society for the benefit of each and all. They see that class-distinctions are founded on the present methods of organising the production and distribution of wealth; and therefore they want to alter these methods. They believe that this can be done, at the present stage of social development, so as greatly to increase production, as well as to secure better distribution ; for they hold that the capitalist system is acting as a clog on the production of wealth, and that this is shown by its inability to solve the problem of unemployment. Every citizen, they say, should labour, in one way or another, for the benefit of Society, and not for the profit of an individual. Social rights and the will to serve go together ; and every one has both an obligation to serve to the best of his powers, and to share in the social product according to his needs. This idea is the basis of Socialist economic policy ; and the conception of equality therefore lies at the very foundation of Socialism.

T H E P R I N C I P L E S O F SOCIALISM

3

II WHAT IS CAPITALISM? Questions for discussion : 1. Is it sensible to produce goods only when a profit can be made by their production ? 2. What is meant by saying that the workers are exploited under Capitalism ? We cannot go further with our discussion of Socialism until we have contrasted it with the present system. The outstanding features of Capitalism are : (1) that the means of producing wealth are owned, not by the whole community, but by a limited class ; (2) that this class lives by exploiting the labourer, who cannot work unless he can get access to the means of production ; (3) that capitalists will employ labourers only when they see a prospect of profit from doing so, and that in consequence unemployment is widespread in capitalist societies ; (4) that the capitalist is at a great advantage in bargaining with the labourers for a share in the product, because they will suffer more than he if they refuse to work on his terms, and because, unless they allow him to make a profit, he will throw them out of work. These are the general characteristics of Capitalism ; but modern Capitalism tends further (a) to restrict competition in its search for profit, so that the effective control of production passes into the hands of great combines ; (b) by means of these combines to restrict production in order to keep up prices to a profitable level, because it is unable to sell at a profit nearly as much as the world is equipped to produce ; (c) in its search for markets, concessions and supplies of materials to foment economic rivalries between nations, to exploit the less developed peoples, and make them politically subject. It is true that there are many small capitalists as well as great; for modern joint stock organisation, with shares of small amount, has helped in diffusing industrial ownership. This has increased the number of persons who seem to have an interest in Capitalism and its survival, and has strengthened its hold. But the small employers and, still more, the small shareholders have practically no control over industrial policy, which is dominated by a quite small class of big employers and financiers at the head of great business concerns. The general body of middle-class shareholders are only pawns in the game. Moreover, just as Capitalism keeps them in subjection, it also subjects the technicians and experts, who can use their knowledge for the benefit of mankind only if its use offers a prospect of capitalist profit. The heads of the capitahst world are not technicians, but financiers, who employ experts at a salary much as they employ manual workers

4

THE PRINCIPLES OF SOCIALISM

at a wage. It is the root defect of capitalism that it fails to secure maximum production of wealth, because it treats production as a means to private profit, and not to the satisfaction of human needs.

III SOCIALIST OBJECTIVES Questions for discussion:

1. Does Socialism aim at equality of incomes, and, if so, will men work hard enough under a Socialist system ? 2. What should be the Socialist attitude towards inheritance, and towards the receipt of incomes from property ?

The economic objective of Socialism is to get as much wealth as possible produced (up to the limits set by men's preference for more leisure to more wealth), and to get this wealth distributed as nearly as possible in accordance with needs. Needs tend to be equal for adults—apart from the special needs of invalids—and for children. The Socialist objective in distribution is therefore equality of income, with public provision for special needs. But it is held that this would lower production, because men will not work hard without a monetary incentive. At present, probably many of them would not, if they had an assured income from Society ; for Capitalism has accustomed them to think in terms of monetary incentives. But a Socialist system would be able to call far more effectively on the spirit of service, and to create a powerful public opinion in favour of doing a fair day's work. Money incentives would become less necessary ; but it is agreed that they cannot be wholly abolished at once. Some inequalities of income must remain for a time ; but they should be confined to necessary incentives to service, and lessened as the need for them grows less. Equality remains the objective, though it must be approached by stages. But inequality is now a matter, not only of unequal earnings, but still more of the receipt of incomes from property (rent, interest, and profits), including the inheritance of wealth. Socialists wish to transfer ownership of the means of production to the community, and accordingly to make rent, interest and profits, as far as they continue, a common possession. This does not exclude compensation to the owners of property, where industries are being socialised piecemeal. But it does mean that in the end the object is to abolish all private incomes from property. When this has

THE PRINCIPLES OF SOCIALISM

5

been done, inheritance will be restricted to purely personal possessions, and allowed to continue, as it does now in Russia. But in the meantime an excellent method of transferring property to the community is the drastic taxation of inheritance. This is indeed by far the easiest way of taxing the rich heavily, under capitalism, without upsetting the productive system.

IV PRODUCTION AND DISTRIBUTION Questions for discussion : 1. How does national economic planning work in Russia, and how could it be made to work here ? 2. How is new capital for industry provided now, and how would it be provided under Socialism ? The aim of Socialists is to secure the fullest and best use of the available productive resources. This is a matter, on the one hand, of getting industry run and developed with the greatest technical competence, and on the other of securing that incomes shall be distributed so as to create a demand for all that the community is able to produce. It involves, in the first place, a planned system of production, in order to ensure that the right goods are produced in the right quantities, the right provision made for the application of labour to making capital goods, i.e., instruments of further production, and all available labour and other resources used to the fullest extent. When production is carried on for use, and not for private profit, it will be possible to arrange this, by means of a National Planning Commission, or similar body, which will decide upon (a) the proportions in which goods and services of different sorts are to be made available ; (b) the provision it is desirable to make, at the cost of present consumption, for increased production in the future. Each industry will have its own planning organisation, and these will be co-ordinated under the central body, which will review and pass judgment on the separate plans. Under this system new capital will no longer be provided out of private "savings" : it will be set aside out of the total productive power of industry before individual incomes are distributed. After this has been done, enough income will be distributed to ensure a market for all that can be produced. There will be no need for private "saving'' and no means of using it to make profits or interest. Everyone capable of work will be employed ; and the only limit to the distribution of incomes will be the productive power of the community and its desire to provide for the future,

6

THE PRINCIPLES OF SOCIALISM

In the transition to this system, it is desirable to foster the collective direction of new capital by means of a National Investment Board empowered to borrow funds from the public for reinvestment in industries which need to be developed in the public interest. But this is only a transitional measure. Under Socialism, "investment" will be not a private but a public affair, because the sources of new capital will be in the hands of the community.

V SOCIALISATION Questions for discussion : 1. How should socialised services be administered, and what say should the workers employed have in their policy and control? 2. Should compensation be paid to the present owners of industry, and if so on what terms ? Socialisation means the transference of industries and services from private to public control. But it does not mean their management by Civil Service departments, as the Post Office is managed to-day. Under Socialism, each industry will have its own largely autonomous administration ; and the various industries will be co-ordinated under the control of a National Planning Commission, or some similar body. This does not mean that each industry will have power to settle what prices it is to charge for its products, or what wages it is to pay. Prices will have to be subject to public control, and the distribution of incomes will be a matter for the community as a whole. But in managing its affairs within the conditions laid down on grounds of public policy, the best plan will be to leave each industry largely autonomous, under competent technical directors approved by the Planning Commission, and with proper provision for ensuring that the workers employed have an effective say in the management. There are likely to be many different forms of organisation for socialised industries, according to the special characteristics of each. You cannot run the building industry and the railways in the same way. If the approach to Socialism is gradual, socialisation is bound to be gradual too. Some industries will be socialised before others. But as long as the key industries (and especially banking) remain under capitalist control, with profit as the condition of production, it will not be possible to socialise any industry in a complete sense, or to run socialised industries very differently from those still under

THE PRINCIPLES OF SOCIALISM

7

capitalist management. Real socialisation involves socialising industry (and finance) as a whole, and not merely an industry here and there. If industries are at first socialised piecemeal, it will be necessary to compensate their owners ; for it is not really practicable to confiscate one sort of property while leaving other sorts in private hands. But compensation should be paid in State bonds or shares in the socialised industry, and not in money, should be terminable (either by sinking fund or directly), should be limited in amount, and should be secured only against the future earnings of the socialised undertaking, and not against the whole revenue of the State. It should, moreover, be speedily wiped out by taxes (e.g., on inheritance), so as to leave the socialised undertakings free of all claims from private persons. If Socialism is introduced suddenly, over the whole field of industry, compensation is unnecessary; for there is no injustice in confiscating all capitalist property at once.

VI SOCIAL SERVICES Questions for discussion :. 1. How far can the development of social reforms be carried without socialising production ? 2. Should women be "economically independent," and should there be children's allowances ? Socialism involves a great development of the social services in some directions, and a curtailment in others. It will make " d o l e s " unnecessary ; for each able-bodied producer will get an income from Society in return for his readiness to serve. But (a) all education will be free, and every citizen will receive secondary as well as primary education, while entry to the higher branches of education will depend on ability to profit by them, and not on the parents' means ; (b) hospital and medical services will be free, and paid for by the community ; (c) much more will be spent, nationally and locally, on the amenities of life—parks and open spaces, playing-grounds, theatres and concert halls, libraries and museums, etc. ; (d) it may be decided to supply free to all certain essential things, such as water, bread, milk for children, and anything of which it is desired to increase consumption in the public interest; (e) there will be certainly separate incomes, publicly provided, for married women not working in industry, and probably children's allowances.

8

THE PRINCIPLES OF SOCIALISM

There will be, then, a big social budget of expenditure. Socialists have always tried, under Capitalism, to get more spent on the social services. But this policy cannot, under Capitalism, be pursued very far, because after a point higher taxation reduces profits, and this causes employers to contract employment, and imposes new burdens on the State for maintaining the unemployed. It is impossible to have a satisfactory development of the social services as long as profit remains the sole inducement to production. Social Reform involves Socialism ; for in order to be free to distribute income in the form of services the State must control the production of wealth.

VII THE TRANSITION TO SOCIALISM Questions for discussion : 1. Can Socialism be established suddenly in Great Britain ? Compare the Russian situation in 1917 with the British situation to-day. 2. What are the first steps a Socialist Government in Great Britain ought to take, and what changes in political structure do they involve ? In Russia, the transition to Socialism was made by revolution ; and as a result the Soviet Government have now full power to organise production and distribution. Russia has a Five Years Plan, and no unemployment problem. In Great Britain, we have been trying to approach Socialism by very gradual stages; and the chief results so far have been some increases in the Social Services at the cost of aggravating the unemployment problem by upsetting capitalists' confidence in their power to earn profits. Obviously the policy of gradual transition to Socialism is in danger of meaning no transition at all, but the turning out of Labour Governments, which seem only to make the situation worse. On the other hand, in Great Britain the possibility of a sudden change-over to Socialism simply does not exist at present. British Capitalism is far stronger than Russian ever was ; and far more people in Great Britain have small amounts of capital or some security that makes them dread revolution or the sudden collapse of Capitalism. Russia only got Socialism because Russian Capitalism had completely broken down. But even so she would not have got it unless Russian Socialists had been ready to assume power,

THE PRINCIPLES OF SOCIALISM

9

The present policy of British Socialists has to be framed in the light of the present attitude of the British people. This, for the present, rules out a sudden transition, though circumstances may change so as to make such a transition possible (e.g., chaos in Europe and the collapse of the credit system). For the present, Socialists here have to try to build up Socialism without an intervening period of chaos and misery, such as Russia underwent. This can be done only by a far more advanced Socialist policy than Labour Governments have so far pursued; for it involves an immediate frontal attack on the key positions of Capitalism. The essentials of such a policy seem to include :— 1. The Socialisation of Banking, including both the Bank of England and the Joint Stock Banks, in order to get the price system and the supply of credit effectively under public control. (See Study Guides 1 to 4, which deal with banking and financial questions.) 2. The Reform of Parliament, in order to make it a more effective and speedy instrument for the carrying of Socialist measures. This includes, of course, the entire abolition of the House of Lords, as well as the devising of speedier legislative methods and the reform of the Cabinet system. 3. The Taxation of Inheritance, and the use of the proceeds as capital for the development of publicly owned industries and services. 4. National Economic Planning, including the creation of a National Investment Board and the speedy socialisation of the leading industries, such as mines, railways, and iron and steel.

VIII SOCIALISM AND INTERNATIONALISM Questions for discussion: 1. How far can Socialism be securely established in one country alone ? Discuss this in special relation to (a) Russia, (b) Great Britain. 2. Will Socialism lead to a WorldGovernment ? Socialism is essentially an international movement. Socialists believe in the brotherhood of man across national frontiers as well as within them. Their ultimate aim is to secure the use of all the world's productive resources for the benefit of all the world's

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THE PRINCIPLES OF SOCIALISM

inhabitants. Socialism established in one country alone is bound to be incomplete and defective, as Socialism is now in Russia ; for it cannot govern the terms of international intercourse. Nevertheless, this Guide has been written mainly in national terms, because the approach to Socialism is bound to be made mainly by national action. Socialists in each country have to work out their own policy for getting Socialism, while helping one another whenever they can, and trying always to foster international co-operation on lines leading towards Socialism, and to check the exploitation of the less developed peoples by their own capitalist groups. Under Socialism, there will be no wars ; for the peoples of Socialist countries will be in control, and will not regard one another as enemies. But wars might arise between Socialist and nonSocialist countries ; and therefore Socialists should help on any movement that seems likely to make wars more difficult, provided only that such movements are not turned into instruments for international action to uphold the capitalist system. Under Socialism, foreign trade will be a real and mutual exchange of goods, collectively organised, and largely of the nature of barter. The more developed countries will doubtless continue to lend capital to the less-developed, in order to foster their economic growth. But probably they will lend either without interest, or on terms which will allow the interest to be paid in goods. They will avoid piling up huge burdens of money-debt, such as are weighing down the world to-day. Probably Socialism will lead to some form of World-Government of a federal kind—an International Planning Organisation to coordinate the National Plans of the different countries. But the only possible basis for Socialism as a form of world organisation is the secure establishment of Socialism in the leading countries.

WHAT TO READ. The number of' books on Socialism is enormous ; but there is a great dearth of good short books that will serve as an introduction. H. N. Bradford's Socialism for To-day (1/-) is the best of the very short works. Fabian Essays, first published in 1890, and Robert Blatchford's Merrie England are both still worth reading. See also the Fabian tract on Socialism by Bernard Shaw and two smallish books by Sidney and Beatrice Webb, The Decay of Capitalist Civilisation and A Constitution for the Socialist Commonwealth. For Communism, see H. J. Laski's Communism in the Home University Library, and for the Russian Five Years Plan Social

THE PRINCIPLES OF SOCIALISM

11

Economic Planning in the U.S.S.R. (Martin Lawrence, 2/-). Larger books on Russian developments are C. T. Hoover's Economic Life of Soviet Russia and M. H. Dobb's Russian Economic Development. See also, for Communist principles, N. Lenin's The State and Revolution (1/-). The best book on the principles of Socialism is Bernard Shaw's Intelligent Women's Guide to Capitalism and Socialism. R. H. Tawney's The Acquisitive Society and Equality, Bertrand Russell's Roads to Freedom and The Prospects of Industrial Civilisation, and H. W. Laidler's History of Socialism are all useful and readable. For the recent developments of British Socialist Policy see G. D. H. Cole's The Next Ten Years in British Social and Economic Policy, and for the foundation of Socialist economic doctrines The Communist Manifesto, by K. Marx and F. Engels, of which there are many editions, and Marx's Capital (in Everyman's Library, edited by G. D. H. Cole).

Printed by The Hereford Times Ltd. (T.U.), London and Hereford.

THE

BANK

OF ENGLAND

The Bank of England I WHAT IS THE BANK OF ENGLAND ? Questions for discussion : (a) What is the Treasury, and what are its relations to the Cabinet and to the Bank of England ? (b) How did the Bank of England come to get its present powers and privileges ? (Get someone inside or outside the group to give you an account of the Bank's history.) The Bank of England 1 is a private corporation, and is the property not of the State, but of a body of private shareholders, who are mostly financiers in the City of London. The Governor of the Bank is appointed by the representatives of these shareholders, and not by the Government. The Bank's powers and duties are, however, largely defined and laid down by Act of Parliament, in as far as they relate to the regulation of the supply of money, that is to say of bank notes. In its other activities, except when it is acting directly on behalf of the Government, the Bank is, broadly, not under any form of State control; but it acts almost always in very close consultation with the public officials at the Treasury, 2 so that it is hard to say whether the Treasury has more control over the Bank, or the Bank over the Treasury. The Treasury is, of course, under the control of the Chancellor of the Exchequer and the Cabinet ; but in fact the permanent officials at the Treasury have a great deal of power, especially when they are in close agreement with the Bank of England and can use its authority to bring pressure to bear upon the Government. 1 The Bank of England was founded in 1694, in the reign of William III, with Government support. It obtained its privileges by making a loan to the Government. Since then its powers have been gradually enlarged by a series of Acts, and especially by the concentration of the issue of bank notes in its hands, and its position as banker to the State. 2 The Treasury is a Civil Service department, of which the Chancellor of the Exchequer is the effective head. The permanent head of the Treasury is the chief of the Civil Service. The Treasury exercises a large amount of control over the expenditure of all other Government departments.

THE BANK OF ENGLAND

3

The Bank, moreover, has the weight of City financial opinion behind it, and is able by this means to put strong pressure on the Government, which depends on the City for short-term loans (Treasury Bills). 1 1 Treasury Bills are promises to pay issued by the Government when it wants to borrow for a short period. The Bank manages the issue of Treasury Bills, which are sold by tender to the banks and financiers in the City of London. There are since the war always hundreds of million pounds' worth of Treasury Bills outstanding ; for the Government borrowed a considerable amount of the War Debt in this form. This is called the Floating Debt, as opposed to long-term debt such as Consols and War Loan. This Floating Debt has constantly to be renewed, by the issue of new Treasury Bills as old ones expire. The rate of interest which the Government has to pay on these Bills is always changing, as conditions vary in the money market.

II WHAT THE BANK OF ENGLAND DOES Questions for discussion : (a) What are the three main functions of the Bank of England, and how do they affect the public welfare ? (b) What are the chief differences between the Bank of England and other British banks ? The Bank of England has three main functions, (a) It manages the issue of currency 1 (i.e., bank notes) and the gold stock 2 held as a reserve against currency and for making payments abroad. (b) It acts as the Government's banker, and manages the National Debt on the Government's behalf, (c) It is the banker of the other banks, including both the Joint Stock Banks and the important financial houses of t h e City of London. 3 The combination of these three functions, which is the result of a long process of historical development, gives the Bank of 1

Currency, i.e., money which passes current, or circulates, in cash payment for goods and services. I t consists of Bank Notes, which are the Bank of England's promises to pay, and of silver and copper coins, which are manufactured by the State at the Mint, but issued through the Bank of England. There used to be gold coins as well, but they were withdrawn in 1914. 2 Gold. Before the war, gold was mainly circulating in the hands of the public in sovereigns, and the Bank had only a comparatively small stock. Now that paper money is used instead of gold coin, most of the supply of gold in the world (except what is used for industrial purposes or hoarded in the Far East) is concentrated in the hands of the great Central Banks. 3 Financial houses. These include the great merchant banks, such as Rothschilds, whose operations are mainly international, the houses which specialise in the floating of new capital issues, and the special houses which deal in accepting and discounting trade bills (i.e., promises to pay which are used largely for settling international trade debts).

4

THE BANK OF ENGLAND

England very great power. It occupies the key position of the entire British financial system. The Bank of England has also many secondary functions of great importance arising out of its three main functions. Among these may be mentioned : (a) the regulation of rates of interest for many kinds of short-term borrowing, through the fixing and variation of Bank Rate ; (b) acting as banker and agent for foreign Governments and for Central Banks of other countries and other foreign institutions in their dealings in the London money market ; (c) collaborating with the Central Banks of other countries in the Bank of International Settlements and in other ways in the handling of international problems of currency and finance ; (d) advancing money for special schemes of industrial reorganisation, either directly or through its subsidiary organisations. The last two functions are largely developments of recent years.

III BANK NOTES Questions for discussion : (a) Why use paper-money instead of gold ? And why limit the amount of paper money that may be issued ? (b) What purposes do gold reserves serve ? Is their present regulation satisfactory ? The entire issue of paper-money in Great Britain (except to a small extent in Scotland) 1 is now in the hands of the Bank of England. The Treasury Notes issued directly by the Government during the war have, since 1928, been replaced by Bank of England Notes. The issue of Bank Notes is regulated by Act of Parliament. The Bank of England is allowed to issue up to £260,000,000 worth of paper money without gold backing. This is called the fiduciary issue. 2 The amount thus issued may be increased in emergency by Parliament on the application of the Bank. It has been so increased in the crisis of 1931. For all notes issued beyond the fiduciary limit the Bank must have a pound for pound backing in gold. The object of limiting the number of notes issued is to maintain their value in purchasing power. If notes could be issued without limit, and their supply were increased without a corresponding increase in the supply of goods and services, each note 1

Several Scottish banks still issue notes of their own, but only in small amounts. Their issues do not affect the general position. 2 Fiduciary, i.e., on trust, without gold backing.

THE BANK OF ENGLAND

5

would necessarily buy less. Such an over-issue of paper money is called inflation. It occurred in many countries during and after the war, and was accompanied by a huge rise in prices. The object of keeping a reserve of gold is to have gold available as required for making payments abroad. For clearly paper money is valid only within the country of issue, and cannot be used for foreign payments. While we were on the Gold Standard, the Bank of England was compelled by law to buy and sell gold at a fixed price in bank notes. Bank notes could thus always be exchanged for gold bullion at a fixed rate at the Bank. So could the notes of other countries fully on the Gold Standard, at their Central Banks. This sufficed, within narrow limits, to fix the exchange value of the pound with other gold standard currencies. Our departure from the Gold Standard took the form of suspending the Bank's obligation to sell gold at a fixed rate. This meant that holders of Bank Notes could no longer change them into gold for export. It destroyed the fixity of the pound's value in relation to other national currencies. (See further on this subject, STUDY G U I D E NUMBER I . — T H E GOLD STANDARD.)

It used to be supposed that it was necessary to keep a reserve of gold against notes used for circulation within the country. But it is now recognised that gold is needed, even under the Gold Standard, only to meet possible demands for export. The important matter as regards the note issue is not the amount of gold held against it, but that it should be large enough to meet the needs of production and consumption, and not so large as to cause a rise in prices. The attempt to secure this is called currency management, and a currency so controlled is called a managed currency.1 1 Managed, as opposed t o a u t o m a t i c . Currency m a n a g e m e n t is an a t t e m p t to regulate t h e q u a n t i t y of currency in accordance w i t h national needs, instead of leaving it to be governed automatically by t h e available supply of gold, which depends mainly on international conditions.

IV THE GOVERNMENT'S BANKER Questions for discussion : (a) What are Treasury Bills ? Why are they issued, and how ? (b) Ought the Government to bank with an independent body, or to act as its own banker ? The Bank of England is the Government's banker. That is to say, the Government pays the proceeds of taxation and other revenue into the Bank, and makes payments by writing cheques

THE BANK OF ENGLAND

on the Bank. Sometimes the Government has a balance at the Bank ; sometimes it needs an overdraft, and has to borrow from the Bank. 1 This depends largely on the time of year ; for receipts from taxes come in irregularly, 2 whereas expenditure goes on all the year round. Further, at certain dates huge payments fall due for interest on the National Debt. The Government sometimes borrows directly from the Bank ; but more often it sells Treasmy Bills through the Bank, and so borrows from the financiers of the City. (See Section I above.) The Bank manages the National Debt for the Government, and is paid for doing this. It pays out interest to the holders of the debt, including the debt to the United States. In effect, it acts as the Government's agent in all major financial transactions. This gives it a position of great influence as the Government's financial adviser. 1

Such G o v e r n m e n t borrowings are called W a y s and Means Advances. T h u s I n c o m e T a x becomes payable in J a n u a r y a n d July, except when i t is d e d u c t e d a t source. 2

V THE BANKER'S BANK Questions for discussion : (a) What is Bank Credit ? (b) What are "open market operations" and how do they work ? The Bank of England is the bankers' bank. The Joint Stock Banks (and the other great City financial houses which are not dealt with in this Study Guide, but will be dealt with in a later issue) keep accounts at the Bank of England. The Joint Stock Banks have always large amounts standing to their credit at the Bank of England. They do not borrow from it, as the banks do in some other countries from their Central Banks. The Joint Stock Banks regard their deposits in the Bank of England as the equivalent of actual cash, as they can always get notes and coin from the Bank by drawing on their accounts. The holdings of the Joint Stock Banks at the Bank of England are thus the primary cash foundation on which they build up the structure of bank credit.1 A fall in their holdings at the Bank of England usually means a restriction of credit. The Bank of England is not without influence on the size of the balances standing to the account of the Joint Stock Banks. 1 B a n k credit, i.e., advances granted by t h e J o i n t Stock B a n k s t o their customers b y w a y of overdrafts and other loans,

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7

It can affect them by what are known as open market operations, that is, by buying or selling securities such as Government loans. 1 For, if the Bank of England sells some of the securities it holds, the buyers have to pay it for them. They do this by writing cheques on their own accounts at the Joint Stock Banks, which have to pay the Bank of England. This reduces their balances at the Bank, and so decreases their available cash basis for credits to their clients. On the other hand, if the Bank of England buys securities, it pays for them, and the sellers pay the money into their accounts at the Joint Stock Banks, which thus find their balances at the Bank of England increased. The Bank of England uses this method when it wants to make bank credit temporarily scarcer or more abundant. By this and other methods, the Bank of England practically controls the total amount of credit which the Joint Stock Banks are able to grant. 1

The Bank of England always keeps a considerable part of its assets in the form of gilt-edged securities, such as Government stock.

VI BANK RATE Questions for discussion : (a) What is Bank Rate, and how does it affect other interest rates ? (b) What are the effects of high and low interest rates, in good and bad times ? The Bank of England's chief method of controlling credit conditions is by means of Bank Rate. This is the rate at which the Bank of England is prepared to discount Trade Bills of good standing, 1 i.e., to pay cash down for a bill payable at some future date, usually three months or less. But the influence of Bank Rate extends far beyond Trade Bills. Its real importance lies in the fact t h a t the Joint Stock Banks and other City houses base upon it the interest rates they grant upon deposits 2 and charge for short-term loans and overdrafts of every sort. The other Banks are under no legal compulsion to do this ; but they do it as a matter of policy, and in effect the Bank of England, by open market operations and in other ways, could compel them to do it even if they were unwilling. Bank Rate, which is fixed weekly by the Bank of England, thus governs the rates of interest charged for practically all types of 1

Trade Bills. See Study-Guide Number I.—The Gold Standard. Deposits, i.e., that part of their customers' accounts which is withdrawable only upon notice, as distinct from current accounts, which can be drawn upon at any moment. The word " d e p o s i t s " is unfortunately used in two senses : (a) as above, and (b) in a wider sense, including both current and deposit accounts. Interest is paid on the latter, but usually not on the former, by the Joint Stock Banks. 2

8

THE BANK OF ENGLAND

short-term loans. It thus largely governs the plenty or scarcity of credit ; for high rates of interest check borrowing and low rates encourage it. (Note, however, that it is not the absolute height of the interest rate that determines the desire of borrowers to borrow, but the relation between the interest they have to p a y and the profit they hope to make. Thus, more money is borrowed at high interest rates in prosperous times than at low rates in bad times.) When the Bank of England wants to increase the supply of credit, it lowers Bank Rate. When it wants to restrict credit, it raises Bank Rate. Its action then becomes effective because the other Banks raise or lower their rates correspondingly. VII THE BANK'S INTERNATIONAL POSITION Questions for discussion : (a) What are Central Banks, and how far do they work together? (b) What is the Bank of International Settlements, and how does it work ? There is no space to deal adequately with this subject in the present Guide. I t will be dealt with more fully in a later issue. The Central Banks of the leading countries work closely together. They must do this, because what each does affects the others. Thus, if interest rates are higher in New York than in London, financiers will tend to remove their balances from London to New York. This will set up a drain on London, affecting the rates of exchange and perhaps causing, under t h e Gold Standard, an export of gold. The different Central Banks have therefore to counteract the movement of money from country to country by raising and lowering interest rates. Interest rates all over the world are not the same ; but they react greatly on one another. In recent years, collaboration between Central Banks has greatly increased, and their representatives now meet regularly together for discussion. In addition, they jointly control the Bank of International Settlements, which may prove to be the nucleus for a World Bank. VIII SOCIALISATION Questions for discussion : (a) Should the Bank of England be socialised, and with what objects ? (b) If it should be socialised, how should it be run under socialisation ? The powers of the Bank of England are clearly too great to be properly left in the hands of a purely private body, even if it does

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9

work in very close connection with the Treasury. The Bank of England ought to be socialised,1 and to become a public institution controlled by the State. Objection is taken to this on the ground that it would make the highly technical work of the Bank subject to inexpert political interference. But the work of the Bank so vitally affects the welfare of industry and the community that it must be managed in the public interest, and the public must learn how to control a body so vital to its well-being. Actually, the Bank of England is not in effect now run mainly for the profit of its shareholders. It pays a fixed dividend, in fact though not in theory, and does not try to make the largest profit it can. But it is managed in the interest of the general body of financiers in the City of London, who control it by holding its shares and appointing its directors ; and it is run in the interests of finance rather than industry. It is necessary to work out the right constitution for a socialised Bank of England, so as to secure that it shall hold a right balance between the various groups and interests concerned in banking policy, and advance the public welfare as a whole. The Labour Party's proposal2 is to make it a Statutory Corporation, with a governing body appointed by the State to represent labour and industry and the consumers, as well as financial and Government interests. The detailed form of socialisation is discussed in a later Study Guide dealing with Banking Socialisation as a whole. 1

Socialised, that is, brought under public ownership and under the final 2control of the State in matters of policy. See Labour and the Nation.

WHAT TO READ Withers. " Money" (Benn). 6d. All Lehfeldt. " Money" (Oxford Manuals). 2s. 0d. fairly Leaf. " B a n k i n g " (Home Univ. Library). 2s. 6d. easy McKenna. "Post-War Banking Policy". 7s. 6d. reading. Robertson. "Money" (Cambridge Manuals). 5s. 0d. Keynes. "Monetary Reform". 7s. 6d. Rather Hawtrey. " The Gold Standard ". 3s. 6d. Andreades. "History of the Bank of England". 15s. Od. more Einzig. "The Bank for International Settlements". advanced. 10s. 6d.

Printed by The Hereford Times Ltd. (T.U.), London and Hereford.

MONETARY SYSTEMS AND

THEORIES by

G. D. H. Cole Fellow of University College, and Sub-Warden of Nuffield College, Oxford

Published by

ROTARY I N T E R N A T I O N A L in Great Britain and Ireland TAVISTOCK HOUSE (SOUTH) TAVISTOCK SQUARE, LONDON W.C.1

R.I.B.I. Pamphlet No. 14. Price 6d. Published January 1943, 10,000

FOREWORD The R.I.B.I. Reconstruction Committee is issuing this pamphlet on 'Monetary Systems and Theories' because of the evidence it has received both of the widespread interest in the subject among Rotarians and also of the desirability of a clear and objective exposition of some of the most important facts and arguments about what is a matter of considerable controversy. No one pretends, least of all Mr. Cole, that this brief survey is exhaustive. It is merely intended as a foundation on which a further study can be built. It is essential, in fairness to Mr. Cole and to the reader himself, that the author's short preface should be read. On behalf of the Reconstruction Committee of R.I.B.I. I wish to express to Mr. Cole our appreciation of his effective response to our request for a brief and impartial presentation of the problem. J. A. R O S E , Chairman, Reconstruction Committee, 1942-43 December, 1942.

PREFACE I should like it to be understood that, while the following pamphlet was written at the request of Rotary International in Great Britain and Ireland, any opinions expressed in it are entirely my own and in no way commit the Rotary Movement. I have tried to be as objective as possible in describing both the existing monetary systems and the views of the various schools of monetary reformers, and have kept my own opinions in the background wherever their expression would have interfered with my main purpose, which was to sum up the views held by competent thinkers on monetary questions rather than to put forward my own solutions. I mention this because it may be thought that, in presenting the subject in this way, I have failed to make as forthright a statement of what I think ought to be done as might be expected of me. I did not feel that the two jobs—which are essentially different —could both be satisfactorily done within the length of a short pamphlet. G. D. H. C O L E Oxford, November, 1942.

Monetary Systems and Theories By G. D. H. Cole I. Here are six simple sentences, each perfectly intelligible in its context, but each using the key word, money, in a different sense. 'I came out today without any money in my pocket: so I had to borrow half-a-crown.' 'How much money have you in the bank?' 'I suppose old must be worth a pot of money.' 'Money has been very tight all this week.' 'Hot money was at the root of the trouble.' 'Each country has its own money; but gold is international money.' Let us look at each of these sentences, and try to see what the key word means in each of them.

'I came out today without any money in my pocket; so I had to borrow half-a-crown.' 'Money' here means cash or currency—paper notes, silver or copper coins. Cash is the kind of money that is used for settling small day-today payments; the kind of money in which wages (but not the larger salaries) are usually paid; the kind of money people carry some of in their pockets. There are some notes for large amounts, which are used in settling certain business debts; but they are unimportant in Great Britain, and need not concern us here. At one time some of this cash-money was made of gold, and the gold was worth as much, or nearly as much, as the things it could be used to buy. It could not for long be worth more, or it would have been worth while to melt it down, and it would have vanished from circulation, even despite laws against melting. In most countries gold-money was worth a little less than what it would buy, because a small charge was made to meet the cost of coinage. But the British sovereign was not subject to such a charge. That was why it was acceptable almost anywhere in the world. Other cash-money is seldom of an intrinsic value equal to its purchasing power, though silver money sometimes used to be. Cash-money which is not intrinsically worth what it will buy is called 'token-money'. It may have some intrinsic value (e.g. silver), or practically none (e.g. paper money). It makes no practical difference whether 'token money' has any intrinsic value or not. 'Token money' gets its purchasing value from being issued by some authority—either the State's, or that of a bank or other agency authorized by the State. In this country, coins are issued from the Mint, which is a State department, whereas notes are issued by the Bank of England (and in small numbers by Scottish Banks). During the last war, the State 5

issued its own notes (Treasury Notes); but in this war the whole issue is managed by the Bank of England under arrangements with the Treasury. 'Token-money' usually circulates only within the country which has authorized its issue. You cannot as a rule use a British bank note to buy things abroad. But you can in normal times usually take any kind of 'token-money' to a bank or foreign exchange office and get it changed into the kind of money you want. You will be charged a commission for this service; and how much of the one money you will get for so much of the other will depend on the current rate of exchange, which is a matter involving considerations we must leave over for the moment. Some countries make much more use of 'token-money' than others; and in general as countries advance economically they make relatively less use of it in business transactions, finding other means of settlement more convenient. The decreased use of 'token-money' and of currency generally in business transactions is closely associated with the growth of banking and of the use of cheques.

'How much money have you in the bank?' This question assumes the possession of a bank account in some sort of bank. It may be the Post Office Savings Bank, or a Trustee Savings Bank, or an ordinary joint-stock commercial bank, such as Barclays or the Midland. In this sense, money does not mean coins or cash: it means a book-entry in the bank showing so many pounds, shillings and pence to your credit. The bank has not nearly enough cash to pay out to all those who have money in the bank; but you can always, unless something has gone badly wrong, get cash for your own cheque against any credit standing in your name. Indeed, you can get more, if the bank is prepared to grant you a loan or overdraft. A loan is paid straight into your account: an overdraft is there to be paid in as you want it, up to the amount the bank is prepared to allow. This is possible because most people do not want to draw out more than a small proportion of their bank-money in the form of cash. If some of them do draw large weekly amounts for paying wages, most of it soon flows back into the banks, being paid in by the tradesmen, propertyagents, insurance companies and others to whom the wage-earners pay it over. Industrial areas, where large sums are regularly paid out as wages in cash, have a much larger relative cash turnover than middleclass residential areas, where most incomes are received and paid out by cheque. Bankers soon get to know what relation the cash demand in any particular place is likely to bear to the total of customers' deposits. Naturally, the amount needed fluctuates greatly between periods of boom and slump, and any rise in working-class incomes means a bigger demand for cash. It follows that there is no fixed ratio between the total of bankmoney and the total of cash that is needed. A boom on the Stock Exchange will not cause the same increase in demand for cash as a rise in wages, because most of the transactions will be settled by cheque. The demand for cash depends on the amount of bank-money in circulation, and on the uses to which this bank-money is being put. Nowadays, the State and the banking system see to it that enough cash is available to meet all dermnds. How much demand there is for cash 6

depends on the policy of the banking system in supplying credit, in the form of bank-money. In order to understand how the financial system works, it is necessary to fix attention on the ways in which the supply of bank-money is regulated. Bankers still sometimes deny indignantly that they ever 'create credit' or bank-money, and maintain that they only lend out what their customers leave with them on deposit. This is nonsense. It is admitted that the supply of bank-money varies greatly from time to time. But the banks' customers have clearly no power to make it vary. They cannot create money. Someone must be responsible for varying the supply; and this someone can be only a bank (or of course the State, when the State creates money directly, instead of handing over its powers to a bank). The truth behind what the bankers say is that the power of the ordinary commercial banks to vary the supply of money is limited, under modern conditions. There are two main limiting factors. First, if one such bank were to create credit (by granting loans or overdrafts) faster than the others, it would soon find that it was getting into debt to the other banks, into which many of the cheques drawn by its customers would be paid. The commercial banks have a clearing house for cancelling their mutual debts; and, as long as they all march in step, their clearing accounts will tend to balance. This, however, would not of itself stop the commercial banks from creating as much credit as they pleased, provided they all followed the same policy. The really effective check on their power to create credit is the Central Bank—in this country the Bank of England. The commercial banks all keep accounts at the Bank of England, and treat the sums standing to their credit at the Bank of England as the equivalent of cash, because they can always be drawn upon in cash up to any amount. By tradition, the commercial banks keep a fairly regular ratio between their cash holdings (including their credit at the Bank of England) and their total deposits (which include the amounts lent to their customers). This ratio is not absolutely fixed, nor is the matter nearly so simple as I am making it appear; but the complications do not affect my general point. This is that the amount of credit the commercial banks are prepared to give is limited by the amount of their cash holdings, and mainly by the size of their balances at the Bank of England. Now comes the vital point. The Bank of England can alter the size of the balances standing to the credit of the commercial banks. It can do this by what are called 'open market operations'—that is, by buying or selling securities in the open market. Whenever the Bank of England buys a security and pays for it with its own cheque, it is creating bankmoney. It is doing so, because usually its cheque will be paid in by a customer to a commercial bank, which will thus find its own balance at the Bank of England increased. The exact opposite will happen when the Bank of England sells securities. It will then be paid for them mainly by cheques on the commercial banks, whose balances at the Bank of England will therefore fall. In this way, the Bank of England can make bank-money scarce or plentiful at will. There are in practice forces which restrict the Bank of England's use of this power within limits; but we will come to these later, as they affect foreign exchange.

7

The Bank of England can always reduce the supply of bank-money by selling securities. But its power to increase the supply by buying securities is less complete; for it can become effective only if the commercial banks co-operate by increasing their loans. Usually they will do this; for they get interest on what they lend and therefore have an incentive to lend as much as they feel they safely can. But they clearly will not lend except to customers on whom they feel they can rely to repay the money in due course. In times of depression, the bankers' confidence in their customers' solvency is apt to be low; and they may accordingly refuse to expand their loans even if their balances at the Bank of England are increased. This is a very important point; for it means that, whereas the Bank of England can always reduce the supply of bank-money, and so force a contraction of business, it cannot always bring about an expansion, even if it tries. It is sometimes said that what brings about an expansion or contraction of the supply of bank-money is the moving up or down of Bank Rate—that is, the rate of interest charged by the Bank of England for rediscounting bills of exchange or other approved commercial instruments. This view is incorrect. A change in Bank Rate does not of itself affect the supply of bank-money. It is, however, true that when the Bank of England wishes to restrict the supply of money it does often raise Bank Rate, or vice versa, and that commercial bankers normally regard a change in Bank Rate as a signal to expand or contract their credits. It is also true that they normally alter the rates of interest they charge to borrowers in step with changes in Bank Rate, and that to a limited extent other interest rates tend to react to such changes. T o the extent to which potential borrowers are encouraged or discouraged by changes in the interest rates they will have to pay, changes in Bank Rate may affect their willingness to borrow, and therewith the amounts which commercial bankers are able to lend. But it is common to exaggerate the importance of this factor. Open market operations are, in these days, much more influential than Bank Rate in determining the supply of bank-money. Let me try to sum up. Bank-money is created by a double process. The Central Bank is in a position to determine the total amount available, and to create the cash-basis needed for this amount. Within the maximum thus set, the commercial banks can create money, to the extent to which they can find borrowers to whom they deem it reasonably safe to lend. This is the mechanism of credit-creation, and it has no relation to the notion that bankers merely re-lend what their customers deposit with them. How can it have, when every loan the banker makes becomes a deposit as soon as it is used? Banker A. lends me £1,000. I pay it over to someone, who puts it into his bank—Banker B.'s. Banker B., when he makes his next loan, may think he is merely re-lending the money; but it is in fact merely money which was created by Banker A. There is, and can be, no distinction between the money paid in by depositors and the money created by bankers in making loans. Presumably, the reason why such a fuss is made about the question whether banks create money is that many bankers regard the admission that they do so as somehow either discreditable or dangerous to their prospects. If banks are mere lenders of money already in being, no one 8

can charge them with being responsible, by their action in making or destroying money, for the ups and downs of business: whereas, if money is of their making, they can be blamed for making too much or too little of it, and thus engendering booms and slumps. Moreover, if the banks create the money which they lend out at interest, it may be asked why the State should delegate this profitable art of money-making to the banks, instead of reaping the profit of it for the taxpayers' benefit. The bankers still in some cases like pretending that they do not create or destroy money; but there is no getting away from the fact that they do.

'I suppose old

must be worth a pot of money?

When old dies, and death duties have to be paid on his property, his assets will have to be valued. There will be a little loose cash in the house, and probably a much larger sum in bank-money—his balance at the bank. But most of his 'pot of money' will be found to consist not of 'money' in either of these forms, but of investments and holdings of land or houses or other forms of physical property, or perhaps of debts due to him from others. The 'money' referred to in the sentence we are discussing is not really money at all, but mainly things of which the value is expressed in money terms. For 'money' serves not only as a means of exchange—the sense in which we have so far dealt with it—but also as a unit of accounting and valuation. If we wish to add up in a common sum a number of valuable things of quite different kinds, there is usually no way open to us except that of expressing their values in money terms. What we are in effect doing in the case of old 's possessions—his investments and his land and house property—is to value them at so many years' purchase of the income they are expected to bring in, or rather at what we could expect a purchaser to be willing to give for them in view of this expected income. 'Money' in this sense does not need to exist in any form separate from that of the things which we value in terms of money. In certain times of emergency, certain countries have issued 'token money' against the security of the land and property of the nation. Assignats during the French Revolution and the Rentenmark in Germany after the last war are examples. It has been supposed that issuing money against such real things gives some guarantee of security, corresponding to that which is supposed to be given by issue against a reserve of gold. But the two cases are really quite different because at a pinch the gold can commonly be used to pay debts outside the country, whereas the land and other physical property cannot, unless a foreigner can be found willing to buy them. Moreover, the amount of land or other physical property existing, and the money value set upon it, give no clue at all to the amount of cash or bank-money the community needs to effect the circulation of its current output, or to cover the volume of its current financial transactions. The amount of these kinds of money that is needed depends on the current volume of transactions and on the level of prices, and not on the amount of a nation's assets in land and property which are not necessarily up for sale. It may be said that the amount of a country's gold stock is also a very 9

bad basis for settling its supply of cash and bank-money. I agree that it is; but may I leave that point over for the present? Some financial reformers argue (and have been arguing for a very long time past*) that, even though the amount of land and capital in existence may be a bad basis for settling the supply of cash and bank-money, the amount of current production is a good one, and should be the criterion of banking policy in the supply of credit. Or rather, what is often argued is that credit—that is, bank-money—should be made available in proportion to productive power, so that no one equipped with the means of producing useful things should be prevented by lack of credit from producing them. This idea has a great deal of truth in it; but the matter is not so simple as may at first sight appear. 'Power to produce' is not unqualified: it is power to produce some tilings, but not others, and it is power to produce these things at not less than a certain minimum cost But power to produce things at a price which no one is prepared to pay for them, even if he has the money, is not real productive power; and power to produce more of certain things than people want, even at reasonable prices, is hardly more real. The supplies of different kinds of goods have to be balanced so as to meet the demands for them. These demands are, of course, affected by the size of the incomes people have to spend; but, no imaginable increase in the incomes of the British people would cause them to buy all the cotton goods Lancashire could produce for them, supposing its export markets to disappear. Thus, in such circumstances, a large part of Lancashire's apparent power to produce would not be a real power, and it would be useless to issue credits in order to make possible an output that would greatly exceed the demand. What people really mean, or should mean, when they urge that credit ought to be based on productive power is that there ought to be enough bank-money available to keep total production at the highest possible level, up to the limits set by shortage of man-power or other instruments of production, or by lack of balance in the supply of such instruments— and of course they also imply that, if there is a lack of balance, steps ought to be taken to correct it as speedily as possible. I believe the doctrine, in this form, to be sound sense. But, it is objected, any amount of money, however large or small, can be used to circulate any quantity of goods, or to finance any volume of transactions, if only prices are allowed to adjust themselves freely to the available supply of money. This is true; but it is a barren truth. For the process of price-adjustment to large changes in the supply of bankmoney is so painful that it is never allowed to happen 'freely'. Some prices are held up because they are governed by long-term contracts (e.g. long-term interest rates), or by successful monopoly action, or by superior bargaining power. Other prices have to fall all the more in order to make up for these hindrances to free adjustment. There is always a very strong presumption that any action which forces price-alteration by altering the supply of money will do much more harm and injustice than good. This does not mean that prices ought not to alter. Of course they should. Technical invention is continually lowering the costs of pro* Thomas Attwood, for example, adduced, the argument during the depression after the Napoleonic Wars. 10

ducing things in many instances, and sometimes other forces arc pushing costs upwards—for example, when it is decided, as a matter of policy, to try to allow the agriculturist a standard of life nearer to that of the industrial producer. The prices of particular things should alter in response to such changes; and as prices in general are simply an average of particular prices, it follows that the general level of prices should alter too. There is no magic reason why upward and downward changes should cancel out, so as to leave the general level stable. Nor is there, so far as I can see, any valid reason why States or banks should deliberately interfere in order to make this happen, by manipulating the supply of money. Price-changes are not bad in themselves. They are bad when they arise from irrational causes. But men tend to think them bad because they have suffered so much from irrational forces in recent years.

'Money has been very tight all this week.' Here we are faced with yet another kind of 'money', or rather with a particular species of the genus, bank-money, with which we have dealt already. The 'money' that is 'tight' turns up usually in the City columns of the newspapers, in discussions of what is called 'the money market'. The money market is, very broadly speaking, the set of agencies through which business men, as distinct from ordinary people, borrow bankmoney for use, not directly in production, but in financial transactions, including the financing of foreign trade. Generally, the phrase is used to describe the agencies concerned with lending for short terms, as distinct from the 'capital market' for long-term investments; but the two cannot be entirely separated. Under war conditions, the Government is the chief short-term borrower, and always Government short-term borrowing is important. But in time of peace the chief functions of the money market are to provide the funds for financing foreign trade and, rather more deviously, the funds for stock market and other forms of speculation. The 'money' which is available in 'the money market' consists chiefly of funds seeking short-term investment and belonging either to the British commercial banks or to the numerous foreign and colonial banks and other financial agencies with offices in London. The ordinary commercial banks so regulate their total lending as to keep a part of it outstanding only for very short terms ('money at call or at short notice'). They lend this money largely to bill-brokers who in turn use it for making advances on trade bills; and they also buy for themselves both trade bills and Treasury Bills. The foreign and colonial banks in London have often large balances accruing to them which they can lend out only for a short time—for example, until they are needed for paying interest or dividends to British holders of overseas securities. They, and various other financial agencies, also lend to bill-brokers or themselves buy trade or Treasury Bills; and some of these agencies also lend money for stock speculation. The plenty or scarcity of money of this kind in relation to the demand for it is the main determinant of the short-term rate of interest, or rather of the group of rates that goes by that name. The rate of discount on commercial bills and that on Treasury Bills are closely connected; and 11

'Bank Rate' is, as we have seen, the rate at which the Bank of England will rediscount certain bills. The rate of 'discount', of course, is simply the rate of interest seen from the other end in point of time. £1 due in three months is worth £1 - x1; whereas for £1 lent now it will be necessary in three months' time to repay £1 + x2. x1 is the discount: x2 is the interest. Writers on economic questions used often to write as if the movements of these short-term rates of interest or discount determined the rates charged for long-term borrowing. I do not deny that the two groups of rates interact; but the relation is certainly not one of simple determination. They interact because certain borrowers—notably the State— can shift between the two groups—for example, by raising a funding loan to pay off floating debt, or by increasing the floating debt to pay off a long-term loan at maturity. They also interact because ordinary commercial bank advances occupy an intermediate position; and in some cases borrowers can shift from bank loans either to short-term borrowing in the bill market or to long-term capital issues. But movements in short-term rates do not necessarily bring about corresponding changes in long-term rates. To suppose that they do is a fallacy which underlies the belief that a low Bank Rate is an infallible means of stimulating industrial activity. Short-term rates for 'money' are usually much lower than either longterm rates or the rates charged on ordinary bank advances. This is partly because money subject to recall at very short notice is less desirable than money of which the loan is assured for a longer period. But it is mainly due to the existence in great financial centres of large masses of bankmoney which those who control it are only prepared to lend for very short periods and must therefore lend for what borrowers are ready to pay for it.

'Hot money was at the root of the trouble. 5 The 'money' we have just been talking about, the 'money' that is lent and borrowed in the short-term 'money market', includes as we have seen a good deal of money that belongs to foreigners. It also includes a good deal that belongs to persons or institutions whose dealings are essentially international and whose 'money' moves about from country to country. The owners of this money are actuated, under normal conditions, by the desire to get the best available return on its shortterm use; and they therefore send it to the international money centre in which short-term rates are highest for the time being. But under abnormal conditions fear replaces hope of gain as the main incentive; and then 'hot money' is sent where it is felt likely to be safest, even if the interest obtainable on it is low or nil. This occurs mainly when the rates of exchange between different national moneys are unstable, as they were for most of the time between the wars. Movements of 'hot money' were the cause of important money market disturbances, by causing money to become alternately scarce and plentiful to a remarkable extent as the 'hot money' was brought in or withdrawn. T o some extent, Central Banks learnt the practice of sterilizing 'hot money' by buying gold and thus locking it up out of use until its owners 12

wanted to remove it, when the gold could be exported to meet the claim. This was part of the purpose served by the British Exchange Equalization Fund and by similar funds elsewhere. 'Hot money' is thus only a kind of bank-money; but it brings us right up against the problem of international exchange, or 'foreign exchange', as it is usually called.

'Each country has its own money; but gold is international money' Each country has its own money—that is, its own money units in which values are measured. Ours are pounds, shillings and pence; or, more particularly, our unit is the pound sterling, of which the others are subdivisions. Other countries use the pound, for example Australia; but an Australian or Egyptian pound is not necessarily or in fact the equivalent of a British pound. Nor is a French franc the same as a Swiss franc, or a Mexican dollar as a United States dollar, or a Swedish as a Czech crown. Each nation's money standard is different from each other's; and yet somehow, for purposes of trade and investment, all these money's have to be exchangeable one for another. The idea which found much favour in the past, and still finds favour in some quarters, is that of making them exchangeable at nearly fixed rates by making each pound, dollar, franc, mark, or what-not exchangeable for a fixed amount of gold at the Central Bank of the country concerned. Where this is done, and the cash-money can be actually exchanged for so much gold, the rates of exchange between national moneys can fluctuate only between limits set by the cost of transporting gold, and insuring it in transit, or at most only a very little beyond these limits, which are known as the 'gold points'. For if the relative values moved beyond these points, it would pay to transport gold instead of changing the one kind of money directly for the other. The 'gold standard', in the full sense of the term, involves that the national money shall be freely exchangeable for gold at a fixed rate, and that there shall be freedom to export gold. It also involves that gold shall be exchangeable for the national money at a fixed rate, or in other words that the Central Bank or the Government shall be always prepared to give the national money in exchange for gold at a fixed rate, which need not, however, be the same as the rate at which the same bank sells gold, but must not be far apart from it. Very few countries have ever in practice worked a completely unrestricted gold standard. Great Britain did, up to 1914; and the United States did, up to the world crisis of the early 'thirties. But most countries which worked the standard did so with some qualifications. There were great efforts by international bankers to get the gold standard universally adopted after the last war; and it was widely accepted in various modified forms. But scarcely had this been achieved when the world crisis of the 'thirties drove one country after another off gold. Great Britain gave up the gold standard in 1931, and has never returned to it. The United States lowered the gold value of the dollar as a result of the crisis, but continued to buy all the gold offered to it. In practice, the United States 13

was, during the period before the war, practically the sole buyer of the world's new gold; and an enormous proportion of the world's total gold stock found its way to the United States. This was not because the United States wanted the gold, which was for the most part a source of dead loss. It was because the United States was (a) a creditor nation, entitled to receive interest and dividends from abroad, (b) an exporter more than an importer, the volume of imports being severely restricted by the high American tariff", and (c) a country to which 'hot money' flowed for safety out of Europe. The United States had to accept the gold, because there was no other way of getting paid what was owing to its citizens; but it then had to sterilize most of it, because if it had been used as a basis for issuing credit, there would have been a great rise in prices and an entire upset of the American economy. Moreover, the Americans knew that, if they were to stop buying gold, there would be an immediate world crisis even worse than that of 1931-32. The situation which existed in the world was quite absurd; but no one could see how to deal with it. The effect of the high American price for gold in terms of dollars was to stimulate an immense increase in gold production all over the world, though the world needed not more gold but less. But however much gold was produced, it nearly all found its way to the United States, because no other country could afford to buy it. In order to buy gold, a country must have something to spare after paying for its imports of commodities and meeting any other external charges on its national income; and most countries were having a hard struggle to balance their international accounts even without buying gold. The case for the gold standard is that, by fixing within narrow limits the value of one national money in terms of another, it facilitates trade and investment across national frontiers. The trader knows that, if he sells a thing for so many dollars or marks, he will get so many pounds sterling when he is paid—that is, if both the countries concerned are on the gold standard. The investor in fixed-interest securities has a similar knowledge, and the investor who buys equities (i.e. shares bearing a variable dividend) has one source the less of uncertainty to face. These are great advantages; but they can be bought at too high a price. They may, moreover, be unattainable advantages; for it may be quite impossible for a country to be or to remain on the gold standard, even if it would wish to. The disadvantage of the gold standard, from the standpoint of a particular country, is that it makes the supply of bank-money depend, not on its need for credit, but on the amount of its gold holdings. Under the gold standard, the issue of currency is based on the stock of gold. Usually there is a 'fiduciary issue'—that is, a supply of currency (or cash) not backed up to 100 per cent, by gold. The system may be either that a minimum percentage of the currency issued shall have gold backing, or, as in Great Britain, that there shall be a fixed, or nearly fixed, fiduciary issue, and that all currency beyond the fiduciary limit shall be backed 100 per cent, by gold. Silver also is sometimes brought in as a subsidiary source; but we can neglect that complication here. Now, the amount of currency issued does not in practice determine the amount of bank-money, as we have seen. But it does set limits to it; 14

for there must be enough currency to meet the demands for it to which the supply of bank-money gives rise. Moreover, the Central Bank under the gold standard in practice regulates the amount of bank-money largely in accordance with its supply of gold. The idea is that it must do this, because if it does not there will arise a divergence between the fixed gold value of its money and its real value in internal purchasing power, and this will lead to its money being either too cheap or too dear. If it issues so much bank-money that internal prices rise, it will be unable to sell its exports to foreigners, who will refuse to pay the higher gold prices demanded for them. If it issues too little bank-money, its internal prices will fall, and this, while stimulating its exports, will make it a bad place for foreigners to sell in, and will also create all sorts of domestic difficulties, by making production unprofitable to many producers, and thus causing widespread unemployment. Thus, a country which is on the gold standard cannot regulate its issue of bank-money according to its own needs, but must follow the course dictated by its gold supply and by the movements of credit and prices in other gold-standard countries, so as to keep the value of its money in goods and services running parallel with theirs. This has meant in recent years that any country on the gold standard is largely compelled to follow the actual movements of money and credit in the United States, which is by far the most powerful economic influence. It means also that a gold-standard country cannot, save within narrow limits, attempt to meet a depression by enlarging the supply of credit or by large loan expenditure on public works, for fear of being unable to maintain the exchange value of its currency, as Great Britain found itself unable in 1931.

In recent years, opinion has swung strongly in favour of attempting to maintain prosperity in face of threatened trade depression by easier credit and by the institution of public works or other measures designed to stimulate investment. The extent to which this can be done under the gold standard depends on other gold-standard countries simultaneously doing the same thing, and apart from this is limited to what can be done without affecting prices—which is, in practice, under a 'free capitalist' economy, very little. When countries are not on the gold standard, their moneys have still to be exchanged. But they no longer exchange at fixed, or nearly fixed, rates. The limits set by the 'gold points' being removed, the exchanges can fluctuate to any extent, though over short periods their fluctuations may be limited or prevented by various expedients, including Exchange Equalization Funds. But no fund can stand out against a long-term tendency for the values of two national moneys to diverge. What determines these relative values in the absence of a fixed standard, such as gold? The full answer is very complicated, and I cannot attempt to give it here. Very broadly, the relative values depend on the supply of and demand for the currencies in question; and the supply and demand depend mainly on the course of trade and investment. If a country's products are cheap, foreigners will buy more of them than if they are dear, in relation to prices elsewhere; and accordingly the country will get more or less foreign exchange by selling its exports. Its imports, on the other hand, have to be paid for in foreign currency, for which they 15

therefore represent a demand. If these two forces fail to balance at the current rate of exchange, the rate will alter until they do balance. In the last resort, accordingly, exchange rates depend, where there is no fixed standard, on relative prices, or what economists call 'purchasing power parity'. This is a gross over-simplification; but I cannot avoid it without taking up too much space. The essential point is that, in the absence of a fixed exchange standard, exchange rates can fluctuate without limit, and are governed by forces of international supply and demand.

16

II. We have now, with the aid of our six sentences, done what can be done in a short space to lay bare the principal variant meanings of the word 'money', and incidentally to throw some light on a number of monetary problems. Let us next look at a very few of the criticisms which are flung, as the basis of various reform projects, at the entire monetary system, and try to see which parts of them are indisputably sense or nonsense, and which are open to reasonable doubt. Again I shall use the method of citing certain sentences, and then trying to elucidate their meaning. 'Stabilize exchange rates, and everything will go smoothly.' 'Stabilize prices, and everything will go smoothly.' 'Stabilize the supply of money, and everything will go smoothly.' 'The function of creating money ought not to be in the hands of private persons: it ought to be performed by the State, and the profit accruing from it ought to accrue to the community as a whole.' 'The faster money circulates, the more work it does: therefore faster circulation means fuller employment.' 'It is an inevitable outcome of the present monetary system to cause a deficiency of purchasing power.' 'The great evil of today is under-consumption: the remedy is for the State to place additional purchasing power in the consumers' hands.' 'The great cause of depressions is under-investment: the remedy is for the State either to invest more extensively in public works, or to devise means of stimulating private investment, or both.' 'The State, like the individual, must cut its coat according to its cloth. An unbalanced budget destroys business confidence.' Let us now discuss each of these sentences, behind each of which lies a general theory of monetary reform.

"Stabilize exchange rates, and everything will go smoothly.' This is the old orthodoxy, in its extreme form; and much effort was spent in endeavouring to act on this precept between the wars. It means, in effect, going back to the gold standard, though not necessarily in quite the traditional form. Many countries did this between 1918 and 1931. Great Britain did in 1925. But, so far from things going smoothly thereafter, they went very bumpily indeed. I am not blaming the gold standard for all the bumpiness; but it is pretty clear, in the light of experience, that a return to gold is not a cure-all. The gold standard might work reasonably well if (a) all the leading countries were on it, at reasonable levels of parity; (b) all the countries on it pursued in common a policy of 'full employment', avoiding both deflation and inflation; (c) the Americans abolished their tariff, or lowered it so much as to make 17

it harmless; (d) countries with a tendency to a 'favourable' balance of payments (i.e. having more owed to them than they had to pay) would regularly invest the surplus overseas; (e) provision were made for revising the 'parities' (i.e. the relative values of the different currencies) from time to time, so as to offset changes in their real internal purchasing power. This is an enormous 'if; but unless these conditions are satisfied, I do not believe the gold standard can be made to work, or any stable system of exchanges be put in its place. Stable conditions of foreign exchange can exist only within a stable economic system, resting on a fair balance of real economic forces and a workable international division of labour. Short of this, fluctuations in exchange rates can be kept in check by various devices and tolerable stability over short periods can be secured without a return to a fixed standard; and that is all we can reasonably expect in the near future. An attempt to achieve more would most likely lead to breakdown, and a return to chaos. This was what happened after 1931; and we cannot afford, in deference to financial orthodoxy, to let it happen again.

'Stabilize prices, and everything will go smoothly.' Why should it? Prices should surely change as costs of production change, and be related to the costs of producing particular kinds of goods. Would it have been a good idea to stabilize the price of motor-cars thirty years ago? But, it is said, we ought to stabilize, not the prices of particular things, but the price level. What is the price level but an average of particular prices? Why stabilize an average? If some prices fall because technique improves, is that a reason for raising others where it is stationary? The germ of truth in this notion of price-stabilization is that prices ought to be guarded against fluctuations which have nothing to do with changes in production costs, but arise out of monetary mismanagement or the ups and downs of the trade cycle. It is sound sense so to manage money as to keep monetary influences on the price-level as small as possible; and it is sound sense to do everything possible to eliminate the trade cycle—a point to which I shall come back later. But absolute stabilization of the price-level is just nonsensical. Let us agree that pricefluctuations are bad, except when they arise from changes in costs, or, I would add, temporarily from such causes as a decline in the demand for a commodity due to changes in consumers' desires. Let us agree that price-fluctuations have been hitherto unreasonably and disastrously great, and that they ought to be reduced within much narrower limits. But let us refrain from erecting a statistical average into a standard of policy.

'Stabilize the supply of money, and everything will go smoothly.' Again, why? Different communities, at different stages of development, have different monetary needs. The amount of money a country requires depends not only on the size of its population, but also on its habits and the nature of its economic pursuits. A peasant country, where the producers live largely off the produce of their own farms, with rela18

tively few money exchanges, obviously needs less money to sustain any given level of production than a country in which most goods are exchanged by means of money; and in this matter there are many gradations between one country and another, both in the proportion of output which is exchanged and in the number of exchanges needed for getting goods into the hands of the final consumers. Moreover, what kind of 'money' do those who advocate this form of stabilization wish to stabilize? Currency? But the demand for this depends largely on the extent to which wages and salaries are paid in cash, or by cheque. Bank-money? But the demand for this depends largely on the degree of integration between the successive stages of production, on the extent of such activities as Stock Exchange speculation, and on the monetary habits of the people. Such things change; and there is no reason to suppose that stabilization of the quantity of money, in either sense, would conduce to economic stability. It is, however, true that the supply of money ought not to fluctuate nearly so much as it does. It fluctuates, both because it is controlled by banks which follow no clear or constant principle in regulating its amount, and because the level of economic activity fluctuates in accordance with the changing expectations of profits entertained by business men, the changing attitude of the bankers, and the changing economic condition of the world as a whole. Remedies for these causes of fluctuation are much to be desired; but stabilization of the total supply of money would be no remedy. It would operate, in practice, to prevent an increased supply, even when more was needed, but not to prevent a decrease in the effective supply in times of depression; for the mere availability of money, as experience shows, is by no means a guarantee that what is available will be actually used. The supply of money should be made to respond to the need for it; and the main objective of economic policy should be to ensure that the real resources available are fully used and then to supply the money lubricant to the required extent. Money produces nothing: it is a lubricant, and not a motive power. Monetary policy should second productive policy: it cannot be erected into an independent factor without jamming the productive machine.

'The function of creating money ought not to be in the hands of private persons: it ought to be performed by the State, and the profit accruing from it ought to accrue to the community as a whole.' I agree with this view; but it has to be remembered that the function of creating money is not without cost. The banks have to meet the expenses of their establishment, and a part of the gain which accrues from their creation of money is absorbed by these costs—for salaries, bank premises, and other necessary expenses. It is doubtless true that banks make very high profits on their capital, and that their power to create money contributes to these profits. But the capital of the banks is very small in relation to their turnover, and the appropriation of bank profits by the State would not make very much difference. This is no 19

argument against appropriating it, and I do not doubt that economies in banking costs could be achieved under unified control; but it is an argument against the view that the nationalization of banking would of itself make credit very much cheaper than it is by eliminating the bankers' profit. The really cogent arguments in favour of nationalization of the banks rest on a different foundation. The case for nationalizing the Bank of England rests on the fact that the Central Bank controls the total amount of bank-money, and that this control is too vital a matter, for the whole community, to be left in private hands. The Bank of England, though the basis of its directorate has been widened in recent years, is still predominantly representative of 'City' finance. It represents even capitalist industry very imperfectly, and the main body of the producers and consumers not at all. It is often a moot point whether, under existing conditions, the Treasury controls the Bank of England, or the Bank the Treasury. There ought surely to be no doubt. The volume of bankmoney ought to be settled as a matter of public policy; for on it depends the level of employment and the entire working of the financial machine in relation to the production and distribution of goods and services. Those who oppose this view do so mainly on the ground that the State cannot be trusted to behave sensibly in financial affairs, and that it is better to trust in such matters to an expert corporation than to the politicians. I agree that politicians are often foolish; but has anyone yet solved the problem of finding an expert corporation capable of acting with enlightenment solely for the public good? The Bank of England represents too much financial and big business interests, and too little the main body of the people, or even the smaller employers. It may be that the directors of a Central Bank ought to be given a large degree of independence of day-to-day political interference. But surely they ought to be finally responsible to the people, and not to a body of private shareholders or to a group of powerful financial interests. The case for nationalizing the commercial banks rests on rather different grounds. The commercial banks regulate in the main, not the total amount of bank-money, but its distribution among would-be borrowers. The banks lend to those in whom they feel 'confidence', and refuse to lend to those in whom they feel none. In this discrimination, they are guided mainly by expectations of the profitability of the enterprises to which they lend. But is this, from the standpoint of the public, the best test? If the State decides after the war to play a part in planning production, it will have to see that bank credit is apportioned to productive concerns in accordance with their several parts in the national plan of production. For this purpose it will need, through the appropriate agencies, to control the distribution of credit, and therefore to control the commercial banks. Of course, those who are opposed to the planning of production are free to oppose public control of the banks, and to affirm their continued faith in private financial, as well as industrial, enterprise, and in laissezfaire as the right principle of economic policy. But we cannot have planned production (or, in my view, 'full employment') without planned finance, or without public control of the commercial banks. 20

It is often suggested that State Banking would make it harder for the small producers to get credit. I believe the opposite to be the case. Bank credit is at present much easier for big business than for the small producer or trader. The State in planning production will certainly not want to take over small-scale business, but will want it to work with the fullest efficiency; for otherwise 'full employment' will be impossible. Therefore State banks would advance credit liberally to the small man. It is also sometimes alleged that private deposits would be less safe under a State banking system than they are today. But why? The State's credit is better than any banker's; and it is inconceivable that the State would repudiate its liability to the depositors. Moreover, the best guarantee of profitability for the banks is a condition of 'full employment'. Bank nationalization would not, of itself, guarantee any improvement in monetary policy; for the State might manage the banks on the same principles as the private bankers do now. But publicly owned banks are indispensable as the financial instruments of a planned policy of 'full employment'; and the pursuit of such a policy implies a liberal supply of credit. Bank nationalization is needed, not for its own sake, but as the instrument of a policy of 'full employment'. These paragraphs are not meant to convince opponents of economic planning and 'full employment'. They are quite right in opposing bank nationalization on individualist grounds, granted their fundamental point of view. I am only trying to show that those who favour economic planning and 'full employment' must favour public ownership of the banks as one of the essential elements.

'The faster money circulates, the more work it does: therefore faster circulation means fuller employment.' The first part of this sentence states a truth. The faster money circulates, the more transactions it can be used to finance at a given price level, over a period of time; and accordingly, the faster money circulates, the less of it will the community need. It is also true that in times of depression the circulation of money slows up because those who possess it tend to hoard it instead of spending it quickly on either consumption or investment, and the effect of such hoarding is plainly to make depression worse. Anything that would cause people to spend or invest money in a depression instead of hoarding it would be an indubitable advantage. On this truth, certain writers have based a theory that the best means of ensuring prosperity is to speed up the circulation of money. There have been proposals to institute a kind of money that goes bad unless it is promptly spent—for example, a kind of money that depreciates by so much per cent. every week, and has to have its value kept up by affixing stamps to it to offset this depreciation. In other words, some people advocate a kind of money bearing a negative rate of interest, so that every holder of it would wish to turn it into real goods as speedily as possible, and thus pass it on to someone else. I can see no valid argument against such money, and much to be said for it wherever hoarding is prevalent. It would be, in my view, preferable to the existing kind of money, which can be held indefinitely in cash or at the bank without 21

deterioration. I believe that unspent money should forfeit its purchasing power, either gradually, as has been suggested, or altogether after a certain lapse of time. This, of course, does not mean that there would be any penalty on saving, but only that saving would have to take the form of investment, and not of mere abstention from buying anything at all. A person could still save as much as he pleased, provided he lent his money to someone who would use it, or invested it himself in the purchase of some real asset. Not saving, but only hoarding, would be penalized. I cannot, however, agree that the institution of 'vanishing money' would cure most of our economic ills. For the hoarding of money is only one among a number of our present monetary troubles, and a speeding up of the velocity of circulation is of much more importance if the total supply of money is limited narrowly, as it is under the gold standard, than if the supply can be adjusted readily to changing needs. If we accept the gold standard, there is a strong case for Vanishing money', or at all events for subjecting the holding of money to a special tax during periods of economic depression. If we reject the gold standard, and any other system which arbitrarily fixes the total supply of money, the case for Vanishing money' is not invalidated; but it becomes much less strong.

'It is an inevitable outcome of the present monetary system to cause a deficiency of purchasing power.' This opinion, in the forms in which it is most often advanced, I regard as untrue. But I have considerable sympathy with what lies behind it. The classical economists, in what is called 'Say's Law', used to maintain that there could never be any deficiency of purchasing power, because every act of production necessarily generated the income required for buying what was produced. This view is patently wrong. Even if all costs of production are also incomes for those to whom they are paid, or at all events represent an equivalent purchasing power, it by no means follows either that all the purchasing power thus generated will be spent in buying what is produced (for some of it may be hoarded), or that total production will be pushed to the limit set by total capacity to produce. If everybody were unemployed, and nothing at all were produced, income at zero would balance zero output, just as much as maximum income would balance maximum output if productive resources were stretched to the full; and the same truism (bar hoarding) would hold good for any intermediate level of production. But, if Say's Law is a barren truism at best, the contentions of those who argue that the present system engenders inevitably a deficiency of purchasing power rest on a fallacy. The argument takes many forms; but its commonest form is what is called 'the A + B theorem', associated with the name of Major Douglas. According to this theorem, the total purchasing power distributed to the citizens may suffice to buy all the finished goods that are produced, but does not provide anything for the purchase of intermediate goods at the various stages of production. In practice, however, part of the available money goes in buying these 22

intermediate goods, so that there is not enough left over to buy all the finished goods. This is sheer fallacy. Intermediate goods are not, in general, bought out of incomes, but out of credits which are repaid as the goods pass on to a later stage of production. The purchase of intermediate goods does not use up purchasing power: it merely transfers it. The gross prices of all goods at all stages of production far exceed the value of the national output, because the same goods are sold several times over at different stages. If the incomes of the people were equal to the gross prices in this sense there would be an immense redundance of purchasing power over the goods available for purchase, and either prices would have to rise immensely, or much purchasing power would have to remain unused. Incomes ought to equal not gross but net output—that is, they ought to balance the output of finished goods and services; and so, on the whole, they do. It is, however, quite true that, when the same sort of money can be used to buy either finished or intermediate goods, as it can be under the existing system, money can be diverted from the market for finished goods to that for intermediate goods, so as to create a deficiency of demand for finished goods. This is most likely to occur during a boom, when rising prices lead to speculation in intermediate goods, and when incomes are very unequally distributed, so that the recipients of big incomes do not want to spend them on consumption. It is least likely to happen during a slump, when there are many inducements to hoard money, but few to speculate in the purchase of intermediate goods. It may be that this diversion of purchasing power is a factor in bringing booms to an end and in causing financial crises. But it is quite certain that it does not occur during slumps, and that it is not a permanent factor in the existing economic system. Disinvestment in intermediate goods is, indeed, a marked feature of periods of depression; but, so far from curing depression, it contributes to make it worse. My own belief is that the use of the same sort of bank-money for final and for intermediate purchases is a cause of instability in the economic system, and that credits to producers ought to be kept entirely separate from money used for making final purchases of either capital goods or consumers' goods. But this opinion lends no support to the 'A + B theorem', which is simply not correct.

'The great evil of today is under-consumption: the remedy is for the State to place additional purchasing power in the consumers' hands.' Under-consumption is in truth a great evil; and J. A. Hobson, who traced it to the maldistribution of incomes, made it the central point in his account of the causes of underproduction and unemployment. We ought not to rest satisfied while our actual production falls short of what we are able to produce without working so hard that the extra product is worth less to us than the leisure we forgo in producing it. We ought to base our consuming power on our power to produce, within this 23

limit, and also within the limit set by the need to use a part of our producing power in making capital goods to increase our producing power for the future. In other words, consumption plus investment ought to equal producing power, whereas endemic unemployment is evidence that they fall a long way below it. But are subsidies to consuming power the best remedy? Certainly they are greatly preferable to no remedy at all. But, if what has been said earlier is accepted, it will be agreed that purchasing power does tend, except under abnormal conditions, to equal actual production; and it would seem reasonable to conclude that the best course is to ensure that production shall be increased up to the level of productive capacity rather than to pay out additional money to consumers without ensuring that production shall increase to a corresponding extent. If we employ the unemployed in producing useful things, and pay them for doing so, up to the point of 'full employment', there will be enough purchasing power to buy all that is produced—unless part of the purchasing power is withheld as a result of hoarding, a possibility which I shall return to a little later. On the other hand, if purchasing power is handed out to consumers without any service being exacted from them in the form of production, there is a clear prospect of total purchasing power exceeding total production at the prevailing prices, or in other words of inflation. If we wish to ensure adequate consuming power, it is much better to ensure that every available worker is employed, and thus produces something to balance his consumption, than to pay out doles which may increase consuming power without a corresponding rise in output. This argument, however, does not apply if the owners of purchasing power choose to hoard it, instead of spending it on consumers' or on finished capital goods or intermediate goods. If this occurs, subsidies to consumption may stimulate production which would not be undertaken without it, and may therefore have good results. But, even so, it would be greatly preferable to prevent the hoarding, and to pay out incomes in return for production rather than for doing nothing. This, of course, is not meant as an objection to paying out living incomes to those who are not in a position to produce—to the aged, or the disabled, or to children in the form of family allowances, or to the sick or the temporarily unemployed who will exist under any system. But the incomes paid out to such recipients ought to be paid out of the proceeds of taxation, and not by the creation of additional money; for otherwise there will be a redundancy, instead of a deficiency, of purchasing power in the community as a whole. If men are paid for producing all they can produce, there is no source from which additional incomes can be paid out, except taxation of the producers' incomes. The only qualification of this statement is that, if hoarding is not prevented, its effects in causing a deficiency of demand may need to be offset by a creation of additional purchasing power credited directly to consumers. Hoarding, as we have seen, can be prevented by causing money to depreciate if it is not used; and this is probably the best way of dealing with it, But we have not yet done with the under-consumption argument. It is often urged that the very unequal distribution of purchasing power in the community leads to a deficiency of demand for consumers' goods, 24

and to an attempt to save an undue proportion of the national income. As long as the saved income is invested in capital goods, no deficiency of purchasing power in relation to total production arises; for spending on capital goods is also spending, and takes goods off the market. But the use of capital goods is to make consumers' goods; and therefore finally the demand for capital goods depends on the demand for consumers' goods. If more capital goods are bought than can find an outlet for their products in the consumers' market, investment will slow down for lack of profitable outlets, and hoarding will take its place. Instead of saving by investing in real things, men will try to save without investing—a process which is possible for the individual, but impossible for the community as a whole. Under-consumption will thus cause underinvestment, by making investment unprofitable; and hoarding will add to one man's riches only by destroying another's, because it will inflict losses on all those who have goods to sell and find less purchasing power ready to buy them. Under-consumption and under-investment are now seen as two aspects of the same fault in the working of the economic system; and it appears that over-saving may lead directly to underinvestment, because the profitability of investment depends on the maintenance of a high level of consumers' demand.

'The great cause of depressions is under-investment: the remedy is for the State either to invest more extensively in public works, or to devise means of stimulating private investment, or both.' Our forefathers were generally concerned to encourage thrift by all means, lest too little should be saved and invested: we are more concerned lest people attempt to save too much, and lest a gap appear between money savings and real investment, and between total producing power and the sum of consumption and investment in terms of real goods. This change has come about largely because of the decline in foreign trade and overseas investment, which is itself a phenomenon of the changed character of the economic world since the great epoch of imperialist expansion came to an end. Our forefathers were never for long at a loss for new fields for the investment of capital; and the opening up of undeveloped areas all over the world was continually enlarging the scale of production in the advanced countries. But nowadays, in face of the closing of the 'frontier', competition steadily gives place to monopoly, and the great monopolies are as keen on preventing additional investment as their forerunners were in encouraging it. This change has totally altered the face of the economic system, and has tended to open up a dangerous gap between what individuals try to save out of their incomes and what business men are prepared to use by way of investment. Hence the growth of endemic unemployment in many countries; and hence the resort to large-scale public works when monetary 'reflation' fails to give the needed stimulus to industry. For the time being, these processes are in suspense because war needs all the man-power of the nations. Even for some time before 1939 25

re-armament was a powerful factor in keeping unemployment in check. But there is no assurance that, when the war is over, the conditions of unemployment and under-investment will not return. Whether this is likely to happen or not depends on the nature of the post-war settlement, especially on the economic side. If the settlement is such as to lay secure foundations for the rapid economic development of the poorer countries —Eastern Europe, India, China, and most of Africa—there is every reason to expect a large-scale expansion of overseas investment, and therewith a closing of the gap. On the other hand, if the world reverts to economic nationalism after the war, the gap will almost certainly become much wider, and it will be possible to stave off mass-unemployment only by resort to public works on a prodigious scale. The nature of the 'gap' I have spoken of needs a little explanation. 'Saving' is one process, and 'investment' another. 'Saving' in itself is merely abstention from consumption; and it needs someone who is prepared to put the saved money to real productive use to turn 'saving' into real 'investment'. Investment in existing securities is not real 'investment' in this sense: it merely transfers the money to someone else, without calling any additional productive power into being. 'Investment', from the standpoint of the community, involves the creation of new productive assets. Now, the individual can 'save' as much of his income as he pleases; but the amount of real 'investment' depends on the willingness of businessmen to create productive assets. When they fail to do this to the required extent, and the 'saved' money remains unused, the consequence is that the total money demand for goods and services (including capital goods) adds up to less than the cost of producing these goods and services (including normal profits). If this occurs, some business men are bound to make losses, or go without profits, to the extent that will offset the withheld purchasing power. Consequently, from the standpoint of the community, 'savings' that do not lead to 'investment'—that is, to the spending of the saved money on capital goods—are not real savings at all. They are cancelled by the losses made by those who cannot sell their goods at remunerative prices. This is the gist of Lord Keynes's theory of 'savings' and 'investment'; and most economists are now agreed that this part of his theory is true. If it is true, it follows that whenever 'investment' fails to take up the whole of what the recipients of income do not spend on consumers' goods and services, a 'gap' in employment is bound to appear; and prosperity is impossible unless this 'gap' can be filled either by State public works or by measures which bring ordinary 'investment' up to the required level. One weapon for achieving an increase of investment is the deliberate lowering of interest rates. But it is quite ineffective to lower short-term rates of interest unless long-term rates can be lowered as well; for it is the long-term and not the short-term rate that affects the worthwhileness of capital investment. It is even doubtful how far business men react in most industries to changes in the long-term rate; but they certainly do react to it in building and other constructional activities in which interest on capital is a big factor in total cost. It is, however, pretty clear that in periods of general economic depres26

sion no practicable lowering of interest rates will avail to bring 'investment' up to the required level. Even zero interest will not attract a business man if he sees more prospect of actually losing part of his capital than of making even a small profit. Accordingly, in periods of severe depression, monetary manipulation is apt to be ineffective, and the only form of 'investment' that can be successfully stimulated is apt to be 'investment' by the State and other public authorities in public works.

'The State, like the individual, must cut its coat according to its cloth. An unbalanced budget destroys business confidence.' Much evil has been done under the guidance of this maxim ; for it has caused Governments, in times of business depression, to impose additional taxation in order to balance the budget, just when what is needed is more and not less purchasing power. Of course, if the State uses the proceeds of the taxation for additional expenditure of such a kind as to increase the total of economic activity, the resulting situation may be an improvement on what would have happened if the taxation had not been imposed. If, however, the proceeds are used, as they usually have been, not for additional creative expenditure, but for meeting existing obligations in order to avoid a budget deficit, the effects are bound to be bad; for people will have less money to spend, and the depression will be made more severe. There is in truth nothing necessarily bad about an unbalanced budget in times of depression, provided only that the business world can be persuaded not to be scared by it. State creation of additional money for productive spending at such times stimulates economic activity and, by making enterprise profitable, increases the yield of taxation and so helps to bring the budget back into balance. It is, I think, in such circumstances better for the State to add to the supply of money than to remit existing taxation; for if it creates and spends the additional money the good effect is certain, whereas if it merely remits taxation the result may be increased hoarding by the recipients of the relief, rather than additional consumption or investment, and if that happens depression will continue and the budget will have been unbalanced to no purpose. It is of the greatest importance to disabuse the public of the notion that an unbalanced budget is necessarily an evil. There is, when one comes to consider it, no fundamental reason why State receipts and expenditure should balance over twelve months rather than over one month or one day. Many economists hold that there ought to be, in addition to the ordinary budget, a State budget of capital expenditure, which would not need to balance against tax receipts, any more than a company has to cover its whole capital out of its receipts within a single year.

27

III. We have now examined our second set of sentences, and therewith the main lines of attack upon the existing financial system and its working. Let me try to sum up. (a) It is generally agreed that stable exchange rates are an advantage; but it may be doubted whether a system of stable exchanges is practicable except under world conditions of expansion and encouragement of international trade accepted and operated by the leading countries. Even under these conditions, it would probably be wise to leave the door open to changes in relative currency values corresponding to real changes in the condition of the various countries. (b) It is generally agreed that steps ought to be taken to reduce the amplitude of price fluctuations; but it is by no means agreed that complete stabilization of the price level is a desirable objective. (c) It is generally agreed that the supply of money has been liable to irrational and harmful fluctuations, and that greater stability is desirable; but it is not agreed that the supply of money ought to be fixed, either absolutely, or in proportion to population. (d) There is no general agreement on the question of bank nationalization, which raises political as well as economic issues; but there is a widespread opinion that the issue of currency and the determination of the amount of bank-money ought to be functions of the State, and accordingly that Central Banks ought to be public concerns, as they already are in many countries. Advocates of State planning of economic development commonly favour public ownership of commercial banks as well, whereas this is usually opposed by those who are hostile to such planning. (e) It is generally agreed that money circulates too slowly in periods of depression; and some writers (notably Gesell) have favoured a kind of vanishing or depreciating money designed to speed up circulation. There is something to be said for this; but it would hardly produce the effects claimed for it, and there may be better alternative methods of dealing with the problem. (f) It is not true that the present monetary system necessarily leads to a permanent deficiency of purchasing power (as Major Douglas contends). But neither is it true that every act of production automatically creates a market for what is produced (Say's Law). Deficiencies of purchasing power can and do arise, either from hoarding ('saving' without 'investment') or from maladjustment of the distribution of purchasing power in relation to the structure of production, or from certain other causes. (g) Under-consumption, i.e. consumption of less than could be produced after due allowance for depreciation and capital accumulation, is a manifest evil, to which persistent unemployment bears witness. The granting of consumers' credits could be effective at certain times in calling unused productive capacity into play; but it is generally preferable to pay out money in return for work than with no economic return. 28

(This of course is not meant as a denial of the desirability of consumers' incomes financed out of taxation, such as family allowances: it refers only to proposals to institute consumers' credits financed out of specially created bank-money.) (h) There is no doubt that, between the wars, there was a 'gap' between 'savings' and 'investment', i.e. that a part of current income tended to be used neither on consumption nor in purchases of capital goods. There is no doubt that this 'gap' involved heavy unemployment, or that it is necessary to close it. Nor is it in doubt that the effect of the 'gap' was that 'savings' which were not invested were cancelled, from the social standpoint, by business losses, and were thus not really saved at all. If active international investment revives after the war, the 'gap' may disappear: if not, it will have to be closed either by extensive State investment in public works, or by some method of stimulating ordinary investment. Measures designed to stimulate investment by lowering interest rates are unlikely to be effective by themselves. These eight points are not intended to cover the whole of the ground, or to summarize all the questions which have been discussed in the previous pages. They have been chosen not with this purpose, but as representing the broad state of contemporary opinion on a few of the proposals which are most often put forward in the course of controversies about monetary policy. These controversies can be divided very roughly into two groups—one dealing with the institutions by means of which monetary matters are handled, and the other with the policies which these institutions should be called upon to follow. The question whether banks should be private or public bodies falls into the first group, whereas most of the remaining points fall into the second. To the first group belong also certain related questions which for lack of space I have been compelled to leave unconsidered—for example, whether investment should be left to be carried on by means of an unregulated system of private appeals for capital or should be brought under some form of public control through a National Investment Board, or again, whether stock market speculation should be left in the hands of stock exchanges as they now exist, or subjected to forms of public regulation designed to reduce the effect of speculative influences. In the second group I have had to leave aside any full discussion of the problems of inflation and deflation, and also of the issues involved in proposals for price-regulation designed to promote economic stability, and of the many highly technical problems connected with the working of foreign exchange. On these and many other questions I can only refer readers to the list of books which I have appended to this brief essay.

2

9

HOW TO OBTAIN FULL EMPLOYMENT D. H. COLE

POST WAR DISCUSSION PAMPHLETS. No. 4 Price 3d.

FOREWORD By Percy Cudlipp Editor of the DAILY HERALD T H E phrase " full employment" is heard more and more often in public discussion. It has all the perils, as well as the attraction, of a popular phrase. Just as, say, "Homes for Heroes" proved a treacherous slogan, so too we should beware of thoughtlessly reiterating "full employment" as if the mere utterence of the words could bring full employment into being. The avoidance of mass unemployment after the war will require radical departures in policy, both national and international. There will have to be, stimulating and criticising the Government, an informed electorate. And since the time is already at hand for planning the "full employment" measures which will be put into effect after the war, it follows that the process of stimulation and criticism should already be active. Mr. Cole has written this booklet as an aid to the ordinary citizen whose duty it has now become to examine the theories of the economist and the policies of the statesman. His gift of making plain a complicated subject has rarely been better displayed.

HOW TO OBTAIN FULL EMPLOYMENT by G. D. H. COLE CHAPTER ONE

WHAT IS MEANT BY FULL EMPLOYMENT?

T

HE maintenance of a high level of employment was laid down by Sir William Beveridge as one of the assumptions underlying his social security plan. This does not mean, as seems to be widely supposed, that the Beveridge Plan is unworkable unless a high level of employment is secured. The Plan is Workable at any level of employment; but if unemployment is severe the cost will be much greater than he has allowed for, and the standard of living of the population as a whole will be much lower than there is any need for it to be. We want a high level of employment in order that we may all be able to enjoy a good standard of living, and that the burden of maintaining in reasonable comfort those who for any reason are unable to work may be as light as possible. The less unemployment we have, the more we shall be able to produce ; and the higher the total national income the smaller will be the burden of affording really good conditions for the children, the sick, the disabled and the old. That is the sense, the only sense, in which the Beveridge Plan depends on Full Employment being achieved. We must not allow the enemies of the Plan to get away with the argument that it cannot be adopted until we have made sure of Full Employment. What is ' Full Employment' ? It does not mean a situation in which there is no unemployment at all. As long as men are free to change from one job to another, or as jobs themselves are in many cases temporary, there will be some unemployment; for men will spend some time out of work between one job and the next. Again, as long as the demand for labour is liable in some occupations to seasonal or casual fluctuations, some people will be less than fully employed. There will be some underemployment, which is a form of unemployment. Of course, if workers in these seasonal or casual occupations were paid a regular wage, even when there was no work for them to do, they would cease to be counted as unemployed. But if industry continued to be wastefully organised, so as to keep workers standing about with no jobs on hand, there would still be unemployment from the national standpoint, even if no individual were counted as out of work. There would be waste of productive resources, causing the real national income to be smaller than it ought to be. The kinds of unemployment described in the preceding paragraph are usually called frictional. They are due to friction in the working of the economic machine. We ought to aim at reducing such friction to the lowest point that can be made compatible with the worker's freedom to change his job. We must no longer allow employers to keep what they call a

2

MAIN REASONS FOR UNEMPLOYMENT

' reserve of labour' hanging around unpaid to be taken on when they want it in order to meet a peak demand. ' Standing-off ' without wages is a thing we must get rid of; and even ' standing-off' with wages is a thing we shall not be able to afford to tolerate as soon as we get our industries rightly organised for the service of the people. For as soon as we do that we shall need all the labour that can be made available for increasing the total wealth produced. It is implied in what I have just written that there ought not, after the war, to be any unemployment at all, beyond the necessary minimum of frictional unemployment which must remain in any free economic system. So much unemployment and no more would not constitute any social problem : it would be perfectly easy to deal with in such a way as to avoid any hardship to the unemployed. In order, however, to reduce unemployment to this level we need to get rid of two other kinds of unemployment which are much more devastating in their social effects than the frictional kind, bad as that can sometimes be. These other kinds of unemployment are usually called cyclical and structural. Cyclical unemployment is the sort that comes in waves or cycles of depression. It is the sort that hit this country in 1921 and again in 1931, and has been hitting it at intervals of from seven to a dozen years for the past two centuries at least. It is the sort of unemployment that hits nearly all industries and occupations simultaneously, though it hits some of them very much harder than others. Such depressions have been to a large extent international, in the sense that most countries have suffered from them nearly at the same time. Probably about half of the unemployment that exists at the bottom of a bad depression is of this cyclical kind ; but, as we shall see, it is not always easy to distinguish clearly between it and other kinds of unemployment. Structural unemployment is the sort that exists because there is something wrong with the structure of industry. The commonest cause of structural unemployment is a decline in demand for a product or class of products which a country has equipped itself to produce. Such a decline may occur either because consumers' tastes or needs change—e.g. if lace curtains go out of fashion the demand for Nottingham lace falls off, or when people take to motor-cars they give up buying horse-drawn carriages—or because the country in question can no longer make a particular type of goods as cheaply or efficiently as they can be made elsewhere—e.g. cheap Japanese cotton goods and bicycles and electric bulbs compete with more expensive British products—or because other countries put up tariff or other barriers in the way of imports which they used to take from the country in question —e.g. the high tariffs erected in many countries against British textile goods. "Depressed Areas" of Capitalism Whatever the cause may be, the decline of an industry is bound to lead to unemployment; for at best not all the labour which is flung out of work can be transferred to other occupations. The difficulty of transfer is greatest with the older workers ; and the problem is most serious where an area has depended to a very great extent on a single industry, which then falls into decay. The ' depressed areas ' which were found in Great Britain between

CONDITIONS UNDER WHICH NATIONS PROSPER

3

the wars were mainly areas which depended very largely on coal, or the heavy metal industries, or on textiles. Obviously, their plight would have been much less evil if, as soon as it could be seen that the industries on which they depended were falling away, steps could have been taken both to re-train the surplus workers for alternative occupations and wherever possible to establish new industries in the same areas in order to avoid the need for mass movement of their populations elsewhere. That nothing of this sort was done, save late in the day and even then on an almost insignificant scale, is one of the main charges that can be laid at the door of the pre-war economic system. War tends almost always to aggravate structural faults in the economic system. It swells up certain industries to a huge size, and then leaves them to face a collapse of markets when peace returns. Moreover, it upsets normal export trades. Countries at war are unable to go on supplying their regular customers ; and these customers are driven either to seek other suppliers or to set up in manufacture for themselves. Consequently, when manufacturers seek to regain their pre-war foreign markets, they find some of them already occupied either by other exporting countries (e.g. Japan's industrial expansion after the last war) or by home manufactures usually protected by high tariff barriers against foreign competition. Post-War Prospects We must expect both these causes of structural unemployment to be powerfully at work after the present war. There has been in all the belligerent countries an immense growth of the armament industries ; and there will come a drastic scaling-dawn where they are not capable of conversion to rapidly expansible peace-time uses. How drastic this scaling-down will have to be will depend partly on the extent to which a policy of full employment at home creates a brisk demand for capital goods to keep the heavy industries busy, and partly on the extent to which the world follows an active policy of building up productive power in the more backward parts of the world (e.g. China, India, Eastern Europe) by supplying them with capital goods (where necessary, on Lease-Lend terms). It is sometimes suggested that to do this will in the long run cause, instead of preventing, unemployment in the already industrialised countries, by equipping the less advanced countries to make for themselves goods such as they have hitherto purchased abroad. But (a) the greater part of the capital goods needed by the backward countries are not competitive in this way—they consist of railway plant, power plant, agricultural machinery, and other transport and public utility capital equipment ; and (b) the effect of raising productive standards in the backward countries will be to make them not worse but better markets for the more advanced ; for as their standards rise they will need many more of the diversified and high-quality products which only the advanced countries can supply. Nations prosper when other nations are prosperous, not when they are poor. The second form of structural unemployment, due to the growth of industries abroad displacing exports from the advanced countries which have specialised in particular kinds of goods for the world market, will probably not manifest itself immediately after the war. There will be,

4

NATIONAL AND INTERNATIONAL PLANNING

owing to the wartime diversion of energy to making war products, a worldwide scarcity of most sorts of consumers' goods ; and as the industries which make these goods gradually get back their factories and their labour which have been diverted to war uses, they will for some time be able easily to sell all they can produce. The testing time for these industries will come later, when the immediate needs for replenishing consumers' supplies have been met and the industries making such goods have to adjust themselves to a normalised post-war market. How much structural maladjustment will then appear to exist will depend largely on the success with which the world as a whole settles down to operate a policy of Full Employment on a basis of national plans co-ordinated internationally. What "Full Employment" Means In the preceding paragraphs I have distinguished three kinds of unemployment—frictional, cyclical, and structural. Some economists prefer to relate the term ' full employment' exclusively to the second of these types. They would describe a country as being in a state of ' full employment' if it had succeeded in eliminating cyclical unemployment, no matter how much it might still be suffering from either or both of the others. Of course, such economists recognise that all three kinds of unemployment need dealing with ; but they prefer to use the term ' full employment' in a restricted sense, meaning by it the highest level of employment attainable without altering the structure of industry, or its habits in engaging or discharging labour. On this showing Great Britain was in a condition approaching ' full employment,' say, in 1929, when there were about a million workers registered as unemployed ; for this million consisted, as to about one-half of the frictionally unemployed and as to the other half of those out of work in the specially depressed industries which were suffering from structural maladjustment. This is, of course, a question of terminology. I prefer, and propose in this booklet, to use the phrase ' full employment' in a wider sense, to imply the best possible use of all the available labour that can be brought about, without labour conscription, by concerted national planning. In this sense, ' full employment' cannot be reached without measures both to eradicate structural defects and to reduce frictional waste, as well as to eliminate cyclical variations in the demand for labour. It is, however, clear that the measures needed for these different purposes may be to a considerable extent of different kinds, and can therefore best be discussed separately. The elimination of cyclical unemployment is in the main a matter of sustaining by general measures the total demand for labour ; whereas the measures needed for combating structural and frictional unemployment are largely particular, applying to this or that industry rather than to industry as a whole. Before we proceed to consider these measures, both general and particular, it is necessary to add a word more by way of definition. In time of war a large number of persons work for wages or salaries who under normal conditions would not so work at all; and a large number more work much longer hours than they would work under the stimulus of ordinary economic incentives. It needs to be plainly stated that ' full employment' does not mean the continuance of these conditions. It does not mean compelling to work for wages persons who prefer not to do so and can support themselves

SWITCHING OVER FROM WAR TO PEACE

5

without (e.g. persons past normal retiring age, or housewives with families to look after): nor does it mean forcing people to work longer hours than they are prepared to accept as reasonable under the terms of collective bargains made by Trade Unions or of laws regulating the duration of the working day. It is for the community to decide how much work it is prepared to do, and whom it will allow or encourage to work for hire. It is for the community to settle at what age children shall enter the labour market, at what age retiring pensions shall be made available, what the permitted daily or weekly hours of employment are to be, and to what extent married women are to be encouraged to work for wages. In other words, it is for the community to decide at what point it values additional leisure for its citizens above more output of material wealth, and what classes of persons it wishes to exclude from, or include in, the labour market. ' Full employment ' does not mean everyone working as hard and as long as they possibly can : it means not wasting any of the labour that is available inside the rules and conventions which society lays down. We can afford to dispense with the labour of the young and the old and to reduce the hours of those who do work in proportion as we make efficient use of the labour which is available for employment and adjust our economic arrangements so as to produce what we really need with the least possible expenditure of effort.

CHAPTER TWO

THE OUTLOOK FOR EMPLOYMENT AFTER THE WAR reasonable to expect that there will be immediately after the war ItimeT aseems short period of dislocation as war factories close down and firms need to get factories diverted to war uses ready for peace-time production.

To this will succeed a period of brisk activity in meeting demands which have had to be set aside during the war, including overseas as well as home demands. This second period will last until the more urgent arrears of peace-time demand have been overtaken, and will then be succeeded by—what ? By a slump such as occurred after the last war ? Or by a period of sustained full employment ? Who can say ? The answer from this point depends not on foreseeable facts and tendencies, but on the policies followed by Governments in this and in other countries throughout the world. Let us call these three periods the period of industrial demobilisation, the period of re-stocking and relief, and the period of long-term reconstruction. They will not of course be sharply distinct: they will run one into another, and before one is over the next will have begun. But the distinction between them is useful. Clearly we should aim at passing as quickly as possible from the first to the second, and at laying the foundations for the third even before we have entered upon the first. That is to say, we ought to plan now, not only for the transition from war to peace, but also for the further process of building up a satisfactory post-war economic system. Some unemployment is bound to occur in the first period as the munition factories close down. In many cases the factories will have to be cleared of

6

WHAT WILL HAPPEN TO WAR FACTORIES ?

workers before they can be adapted to the new work which they are to undertake in time of peace. This applies both-to war factories proper and to other factories which have been diverted for war purposes from their normal lines. It will not be possible in many cases to pass over at once from producing war goods to making what will be needed after the war. Therefore, the workers who are discharged from the war factories, as well as those who are demobilised from the armed forces and the civil defence services, will have to be maintained until work is ready for them, and will have, where necessary, to be trained for the types of work for which new recruits will be wanted. For this purpose, the requisite parts of the Beveridge Plan ought to be in full operation well before the end of the war. If they are not, emergency arrangements will have to be made, as they were made in 1918 ; but this is a much less satisfactory way of going about the matter. It is important that factories equipped to make peace-time goods which have been converted into war factories or used for storage during the war shall be evacuated as speedily as possible and re-equipped at once for peacetime production. It is hardly less important that plans be made in advance for converting as many as are suitable of the great Ordnance and other war factories to the production of peace-time goods, and that no opposition of private employers' associations to such conversion shall be allowed to stand in the way. Workers now in the war factories who are prepared to remain and are of suitable types should be assured in advance of jobs in these converted factories, and should be paid retaining salaries while they are being got ready. One large use will be to make fittings and furniture of all sorts for the millions of houses which will have to be built. Another will be to arrange for the standardised mass-production of many types of consumers' goods which could be greatly cheapened if they were made after simple designs by modern standardised methods. Probable Demands of the Building Industry I do not propose to discuss here the many difficult problems of demobilisation, as these are being dealt with in a separate booklet. I must, however, point out the very great importance of ensuring early release both from the forces and from the war factories of skilled men who will be urgently needed to deal with the re-equipment and restarting of peace-time industry. This is especially important in the case of skilled building craftsmen, of whom there is bound to be an acute shortage. There will be huge arrears of. housebuilding and repairs to be made up, war damage to houses to be made good, and a competitive demand for building labour to help in the reconstruction and re-equipment of factories of all kinds. Not even the most forthright measures will prevent a really serious shortage of skilled builders ; and plans for training large numbers of additional skilled men ought to be put into operation at the earliest possible moment. The Government has already promised to do this; but I am not convinced that the task is being handled energetically enough, or on a sufficient scale. Building of all sorts will make very large and immediate demands on the supply of labour after the war. There will be openings in the building and allied trades for great numbers of returning soldiers and disbanded workers. This demand, however, will be mainly for men, and for

SHORTAGES AND RATIONING

7

relatively young men at that; and young men will be scarce, even if the scarcity is not greatly increased by heavy war casualties. It will be necessary to train for the building trades men who are already in middle age, if these trades are not to absorb more young workers than the country can afford to assign to them. The shortage of young men will evidently be a factor making for the continued employment of a large proportion of young women in the post-war factories. It is to be anticipated that many of those who have entered the factories under war conditions will wish to leave them when the war ends. Many are married already, and many will be marrying and having children. No doubt, a substantial number will remain in the factories after marriage ; but I think it will become much commoner than it has been hitherto for women who have left the factory on marriage to return to it later, when their children no longer make so heavy demands on their time. It is also likely that arrangements for enabling women to undertake parttime factory work have come to stay. Women in the Labour Market. There are some who will dislike these notions on the ground that the increased employment of women will mean more competition in the labour market, and threaten to " do the men out of their jobs." I do not take this view. I am sure that, if we manage our affairs sensibly, we shall be facing not a surplus but a shortage of labour after the war, and that we shall need all the help with production that women can give without neglecting their family responsibilities. Why I think this will appear more clearly in the next chapter, when I go on to discuss the forces that determine the demand for labour. In the first period immediately after the war, the essential things will be (a) to provide adequate maintenance and, where necessary, training for those who are thrown out of work ; (b) to carry through as quickly as possible the re-equipment of the factories for peace-time production ; and (c) to get the building industry going quickly on the largest possible scale. In the second period, which I have called the period of re-stocking and relief, the most urgent tasks will be to expand as rapidly as possible the output of all kinds of consumers' goods both for the home market and for export, in order that consumers and traders may replenish their stocks, and goods be made available for relieving the more pressing needs of the peoples of Europe, Asia and North Africa. During this period it will be indispensable to keep a large amount of control over what is made and how it is distributed, both in order to avoid wasteful use of materials (many of which will continue scarce for some time) and to ensure that sufficient supplies are made available for export, both for relieving pressing needs abroad, and for giving in payment for necessary imports. It seems probable that rationing will have to be retained for many kinds of consumers' goods until, throughout the world, the more pressing needs have been met. There will be in this second period no question of unemployment owing to shortage of demand in the trades producing consumers' goods : in fact it seems probable that the only sources of unemployment in these trades will be either shortage of reequipped factory space, or of the necessary nuclei of skilled workers, or of raw materials necessary to particular industries.

8

LONG-TERM VIEWPOINT

This second period will merge into the third—that of long-term reconstruction. Long-term reconstruction should, indeed, be proceeding from the very beginning ; but unavoidably, during the first and second periods, the largest amount of attention will have to be given to short-term problems. For us in Great Britain the chief economic problems of long-term reconstruction are the abolition of structural unemployment and the construction of an economic and financial system which will ensure that the general demand for labour will be maintained continuously at a high level. The measures needed for abolishing structural unemployment will make large demands on the industries which produce capital goods ; for it will be necessary, while scaling down some branches of production, to expand others with much new capital equipment and to modernise many more by introducing more efficient plant and better planned factory buildings. We shall need also to bring thoroughly up to date our transport system, to amplify greatly our public utility services for the supply of power (including the coal industry), gas and water, to build many new and well-equipped schools, hospitals and other public buildings—to say nothing of the thorough re-designing and rebuilding of our cities, blitzed and unblitzed alike. These essential tasks may be supplemented by other needs which may arise in the years of peace. Controlling Capital Investment These tasks of capital construction will rise to a position of predominance during the third period, and will, as they fructify in improved productive and human efficiency, make possible a rapid rise in the supply of consumers' goods and services—that is, in the standard of living of the people. During this period, it is to be hoped, acute shortages of consumers' goods will disappear, and personal and household rationing will vanish with them. It will, however, be imperative in this period to keep a tight control over the processes of capital investment, in order to ensure that the capital goods industries produce the goods that are needed for dealing with structural defects in our productive equipment, for modernising obsolete plant, and for raising the standard of life for the whole population. The nature of the required controls I shall discuss later. What must be grasped now is that when it becomes possible to dispense with the rationing of consumers' goods this will not mean that the time has arrived for giving up public control altogether. Public control over the key industries is, as we shall see, indispensable for the maintenance of full employment. It is not a thing which we can afford to give up gradually, in the passage from war to peace. This control must become a permanent feature of the new industrial order if we are to avoid the mistakes which were committed after the First World War, with their aftermath of large-scale unemployment.

WHEN MONOPOLY CAUSES UNEMPLOYMENT

9

CHAPTER THREE

ON WHAT DOES THE GENERAL LEVEL OF EMPLOYMENT DEPEND? ULL employment does not come of itself, as we have ample reason for F knowing. Under the profit-seeking system, employers employ labour up to the point to which they think they will add to their profits by employing

it, and no further. This need not mean that employers take on all the labour which they could employ and make a profit; for sometimes they can make a higher profit by using less labour rather than more. If the economic system were entirely competitive, no doubt employers would be forced by competition to employ all the labour they could use at a profit; but when, as is always the case under modern conditions, many industries are under the control of trusts or cartels or other kinds of business association which are able to regulate output or prices, it often pays a group of employers to sell less at a higher, rather than more at a lower, price, and this means that they employ fewer workers than would be set to work under purely competitive conditions. Monopoly thus becomes a cause of unemployment—a more and more important cause as the scale of production increases and combination is made easier by the difficulties in the way of the entry of additional competitors into a trade. To this special cause of unemployment we shall come back ; but first of all let us consider what, given the prevailing conditions of monopoly or competition, determines the fluctuation in the amount of employment offered in good and bad times. In Great Britain between 1929 and 1932 the percentage of registered workers out of work rose from 10.3 per cent, to 21.9 per cent. ; and in the United States over the same period the index of workers in industrial employment fell much more sharply from 100 to 63 (employment in 1929 = 100). What was the cause of such prodigious fluctuation—a cause which must clearly be removed or offset if we are to enjoy secure conditions of full employment ?

Reasons for the Slumps A study of the figures in either country will show that the fall in employment was very much more severe in the industries making capital goods than in those making consumers' goods, and that there was also an exceptionally sharp fall in exports. The reasons for both these phenomena are quite clear. If there is any fall in consumers' demand, it is almost bound to react heavily on the industries which make capital goods. Suppose in year A the output of consumers' goods is 100, and that in year B this demand falls to 90. Suppose that the rate of depreciation and obsolescence of capital goods used in making consumers' goods is 10 per cent, per annum. If no new capital goods at all are ordered to replace those which wear out in year A, there will be still enough capital goods left to produce 90 units of consumers' goods in year B. Thus, a fall of 10 per cent, in consumers' demand could apparently produce a fall of 100 per cent, in the demand for capital goods. Of course, in practice, the fall is not quite so severe as this ; for some new capital goods will be ordered even in bad times. But enough has been said to show why

10

MAINTAINING THE NATIONAL INCOME

the demand for capital goods usually falls off in bad times very much more than the demand for consumers' goods and services. The export trades are also for the most part hit harder in a depression than the trades which cater mainly for the home market. This is because countries which find themselves suffering from economic distress are apt to impose barriers in the way of imports both in order to protect home industries from foreign competition and to reduce the pressure on their foreign exchanges—especially when they are debtor countries. Depression is apt to be most severe of all where an export trade is also an industry producing capital goods or dependent largely on the capital goods industries (e.g. steel and coal), or where a home industry depends largely on foreign trade (e.g. shipbuilding, or work at the docks). Purchasing Power and Demand A part of what has been said in the foregoing paragraphs can be summed up, and put in a rather different way, by saying that in times of depression investment usually falls off much more than consumption. The national income flows at any time into two streams, one, the larger, supplying directly the consumers' needs, and the other going to the making of instruments of production for the replacement of plant which is wearing out or for the supply of additional instruments for the increase of productive power. Of course, this classification ignores exports ; for capital goods may be exported in exchange for imported consumers' goods or vice versa. Equally of course instruments of production are of no use unless they result in an increased flow of consumers' goods and services later on ; for the use of all production is to be consumed either at once or over a period of time. A country can go on producing more than it consumes only if it lends or gives away some of its production by exporting capital, as Great Britain did in the nineteenth century and as the United States did after the last war, and is doing now. We can, however, for the moment ignore these complications, and discuss the position of a country which is using up all its product at home. The national output of such a country will consist partly of consumers' goods and services and partly of capital goods. When all is going well, the entire national income will be spent either on consumers' goods and services (consumption) or on capital goods (investment). There is, however, a difference between the motives which lead persons to expend their incomes in these two ways. The purpose of consumption is directly to satisfy wants ; whereas the purpose of investment, when it is made by private persons, is usually the making of a money profit. If for any reason those who are in the habit of investing become pessimistic about their prospects of profit, and fear that investment is more likely to result in loss, they refuse to invest, and thus throw producers of capital goods out of employment. In doing this, they destroy the purchasing power of those who are thrown out of work (employers and shareholders as well as workers in the industries producing capital goods), and thus help to make their pessimism come true by reducing consumers' demand. That is why any slump, once started, tends to get worse ; for every person who loses his purchasing power tends to throw others out of employment, and unemployment is worsened by this accumulative effect. Let us now consider the same point in yet another way. In a healthily working

SAVINGS AND INVESTMENTS

11

economic system, the sums spent in buying the current output constitute the incomes of the producers, and as long as the whole income paid to the people is spent on some part of the output production can continue unchecked. If, however, the owners of incomes keep back a part of their incomes, and do not spend this part on either consumption or investment, the total sum offered for the current output will be less than the cost of producing it, including the normal profits of the owners of the capital in use. If this occurs, some or all of the producers will be bound to make losses, which will deter them from producing as much as before. They will discharge workers, and thus make the situation still worse. The way in which this happens can be made clearer by introducing a further distinction. The older economists used to say that all incomes were either spent or saved, equating spending with consumption and saving with investment. But in fact, from the standpoint of the individual, saving and investment are two quite different things. To save is merely to abstain from consuming a part of one's income ; and saving turns into investment only if the money saved is thereafter used in buying new capital goods. There is no real investment if the money is merely left lying in a bank, or locked away at home, or if it is used in buying second-hand capital goods in the form of stocks and shares representing existing capital assets. In order to keep the producers of capital goods employed, someone must order new capital goods from them. In the capitalistic societies of to-day this ordering of new capital goods is done only in part by those who save out of their incomes. It is done mainly by a limited class of business men who either float new companies or expand the capital resources of companies which already exist. It is done either out of reserved profits built up by existing firms, or out of money borrowed by business men from the public or from the banks. Thus, the flow of money into investment depends mainly on the willingness of this limited class of business men to risk their own money or to borrow other people's money at interest and use it for the purchase of capital goods, i.e. buildings, machinery, and other instruments of production.* If these business men fail to see a prospect of satisfactory profit from doing these things, investment will not occur, no matter how much of their incomes the public as a whole may have ' saved ' by abstaining from consumption. When this situation arises, the more the public ' saves' the worse unemployment becomes ; for their ' saving' means that the demand for goods for consumption is further depressed. Finally, the reader must be reminded that business men may refuse to invest, not only because they fear loss, but also because they think scarcity will yield them higher profits than plenty. The more industry is in the hands of monopolists, the more likely is it that business men will refuse to invest as much as the members of the public are attempting to ' save.' The position is further complicated because the total supply of money is not fixed, but can be varied at any time by the action of the banking system. * Economists distinguish between ' consumers' goods,' that is, goods which are bought for immediate use, such as food, clothing, and other current 'supplies, and ' capital goods,' that is, things which are used in making other things, such as factory buildings, machinery, power stations, and so on. There is a third category of ' durable consumers' goods,' such as houses, which are used up only over a long period. For the purposes of the present argument, these should be classed with ' capital goods,' under the wider heading of ' investment goods.'

12

POWERS OF THE BANK OF ENGLAND

In Great Britain, the power to vary the supply of money is mainly in the hands of the Bank of England, which can make or destroy money practically at will by what are known as ' open market operations '—that is, by buying or selling securities from or to the public. I have no space to explain this process fully here.* It is enough to say that, whenever the Bank buys securities, it pays the public for them. The recipients of the money pay it into their banks, which thus find their cash resources enlarged, and are in a position to lend more money to business men. As the banks by convention lend up to about ten times the amount of cash (including balances in the books of the Bank of England) in their possession, every £100 spent by the Bank of England in buying securities enlarges the supply of bank money by about £1,000. When the Bank of England sells securities this process is reversed, and the supply of bank money—which is the kind of money chiefly in use— is correspondingly reduced. Essentials of Economic Prosperity The relevance of this to the question of employment is that an addition to the supply of money increases, whereas a subtraction from the supply reduces, purchasing power, and thus affects the incentives to employ labour. A withdrawal of money by the banking system has much the same effect on employment as a refusal to invest, and an effusion of additional money will, under most conditions, stimulate employment. There are, however, conditions under which the latter effect may not develop. An addition to the supply of money is only potential until someone actually borrows it from the banks. If the business world is pessimistic, it may refuse to borrow, and the additional money may fail to come into actual circulation. On the other hand, a reduction in the amount of money in circulation will always depress employment. We are now in a position to answer, in general terms, the question which stands at the head of this chapter. The volume of employment depends on the level of active purchasing power. This level must be high enough to induce employers to engage all the available labour, or unemployment is bound to exist. Moreover, as neither labour nor plant is homogeneous, the purchasing power must be used in such ways as will ensure a rightly balanced demand for different kinds of goods and services, corresponding to the productive powers available, or unemployment will exist in some occupations even when there is an acute shortage of workers in others. In very general terms, we may say that in order to reduce unemployment to a low level the demand for both consumers' goods and services and capital goods must be high. Any serious unemployment in particular industries or areas which persists even when the total demand for both classes of products is high is a sign of structural maladjustment, and needs to be put right by the expansion of forms of production which are in good demand by means of new capital investment and re-training of labour for alternative jobs. In general, if the demand for consumers' goods and services is high, business men will expect good profits from responding to it, and will be ready to invest in capital goods. A high level of consumers' demand is therefore * For a fuller explanation, see The Means to Full Employment, by G. D. H. Cole (Gollancz).

HOW TRADE CAN BE STIMULATED

13

the first essential for economic prosperity under the capitalist system. But where the system is dominated by monopolies, investment may remain low even when consumers' demand is high. The remedy in such a situation is to destroy the monopolies, either by outlawing restrictive practices and controlling prices and profits, or by taking them over into the hands of the public and thus abolishing the restrictive influence of the profit-motive. In the absence of monopoly, a high level of consumers' demand is enough, without special measures, to ensure activity in the industries making capital goods. In periods of depression, both consumers' demand and investment fall to a low level, but, as we have seen, the fall is usually much the greater in the industries making investment goods. Accordingly, the most obvious way of stimulating a revival is to create an additional demand for such goods by increasing the amount of investment. How this can be done we shall see in the next chapter. It is, however, also possible to stimulate consumption instead of investment, leaving the increase in consuming power to act in turn on the business world's willingness to invest. Either policy can be so managed as to achieve the desired result—or, of course, the two can be applied together. The essential thing is, by the one means or the other, or by both, to raise purchasing power to a level at which the total volume of employment will be as high as is required. In the foregoing argument, it has been assumed that investment is undertaken by business men in pursuit of profit. In practice, however, some investment in all societies is undertaken by the State or other public bodies, and profit is not the end in view. This applies most obviously to armaments, schools and other public buildings, roads and bridges ; and it can apply to other things of which the State makes itself responsible for some or all of the supply. Houses are an outstanding example, and transport services, where they are publicly administered, are another. Naturally, public investment has just the same effects as private investment in stimulating employment. What counts is the total level of demand for labour, irrespective of the sources from which it comes. POINTS FOR DISCUSSION {see also p. 22)

1. Should future Governments assume responsibility for maintaining employment at a satisfactory level ? 2. What do you expect to be the- situation in relation to the demand for labour (a) immediately after the termination of hostilities ? (b) during the following two or three years ? (c) subsequently ? To what extent is it necessary to have these three periods in mind in planning now ? 3. How do you distinguish between cyclical, structural and frictional unemployment? To what extent are different methods needed for dealing with these three kinds of unemployment ? 4. How are the amount and character of labour supply after the war likely to differ from those which existed in 1939 in respect of (a) age distribution ?

14

THE STATE AS AN EMPLOYER

(b) sex ? (c) empfoyment of juvenile labour ? (d) age of retirement ? Do you consider that there is likely to be a shortage or a surplus of labour after the war ? 5. On what does the general level of unemployment in a capitalist society depend ? Discuss this question in relation to the demand for (a) capital and investment goods ; (b) consumption goods and services. Why are the trades producing capital goods usually more depressed in bad times than those producing consumers' goods and services ? 6. Discuss the relations between saving and investment. CHAPTER FOUR

PUBLIC WORKS AND EMPLOYMENT men, acting under the stimulus of profit, are unwilling to employ IF business the available supply of labour, what can be done ? Either the State

must step in to create an additional demand for labour, or the effective supply of purchasing power in the hands of the people must be increased, so as to make business men willing to expand production and employment. In this chapter, we shall discuss the first of these alternatives. Action by the State to increase the demand for labour commonly takes the form of Public Works. The State, by building, or arranging for the building of, more houses, schools, hospitals, other public buildings, waterworks, power stations, roads, bridges, harbour works, and so on, or bybuying more armaments, causes more workers to be employed in the capital goods trades either by itself or its agents, such as the local authorities or public corporations, or by contractors working on public orders. The workers thus employed (and the contractors) then spend their money on goods and services of every sort and kind, and the additional employment induced is much greater than that provided directly on the Public. Works. This indirect effect of Public Works on the general level of employment is called by economists " the Multiplier." In the past the State in times of depression has usually cut down its own expenditure on capital goods, thus making the depression worse. It has done this under the mistaken impression held until lately by orthodox politicians and economists that it is a virtuous act to make the annual Budget balance. Why it should be necessary for the State's Budget to balance each year no one has ever explained—much less why the State should insist on trying to meet capital expenditure out of current revenue. It is now pretty generally agreed that such views are wrong, and that the State should expand, instead of contracting, its capital expenditure when the total demand for labour looks like falling off. It is further agreed that the cost of capital works should not be charged against the ordinary Budget, and that the State should keep a separate capital account, meeting out of revenue only interest and sinking fund charges, and not necessarily covering even these in the

PUBLIC OWNERSHIP OF INDUSTRY

15

ordinary Budget in bad years. The money for State capital expenditure could be raised either by borrowing in the open market the money which business men are unwilling to use (see p. 12), or by borrowing on special terms from the banks, or by the State itself creating the money in the same way as the banking system can create it now. I have no space here to discuss the respective merits of these alternatives :* the point is that the State must provide the money in such a way as not to reduce proportionately what the public would otherwise spend, as it would do if it raised it by taxation of the ordinary kind. The demand created by the State's action in starting Public Works must be additional demand, increasing the volume of employment. Clearly, Public Works will exert their effect on the economic situation most smoothly and to the best advantage if they employ unused resources of plant and labour with the least possible disturbance to the structure of industry. If resources have to be largely transferred from one industry to another, and if labour has to be used in ways that will not take advantage of existing skills, there will be serious loss and friction. Moreover, profit-seeking capitalists will want the State to confine itself to types of Public Works out of which there is no profit to be made, and to avoid competing with their own businesses in the works it undertakes. The result of this capitalist opposition is apt to be that State Public Works are limited to a narrow field, so that the-things produced to the State's orders are not those which the public most wants, and there is a large diversion of labour from industries in which the capitalists object to State activity into industries in which less opposition is aroused. Public Works are apt to be concentrated very largely on building and roadmaking, because these are industries in which private contractors are accustomed to working on public contracts. There is accordingly no direct stimulus to industries such as merchant shipbuilding or heavy engineering, in which depression may be much more severe. Key Industries for State Control The wider the sphere of public ownership of industry is, the greater is the State's power to carry out a balanced programme of Public Works. The demand for capital goods is quite highly concentrated in a limited number of industries and services. If the State owns and operates these services, either directly or through Public Corporations such as the Central Electricity Board, it is in a position to carry out a policy of public investment far more smoothly and efficiently than it can be where these great capital-using industries are in private hands. The key industries from this point of view—the industries which the State needs to own and operate in order to carry through a really effective policy of Public Works—include the following :— 1. Housing, i.e. the State or its agents should be the chief suppliers of new houses, through municipal building of houses to let at reasonable rents, and should thus be in a position to determine the level of employment in house-building. It is a secondary matter whether the public bodies arrange for the actual building to be done through private contractors or undertake it themselves by Direct Labour. House-building will need to be at a very high level after the war, in order to overtake arrears, replace * For a discussion of them, see The Means to Full Employment, by G. D. H. Cole (Gollancz).

16

2.

3.

4.

5.

6.

PUBLIC UTILITIES bomb-destroyed dwellings, and provide for replanning and a larger number of separate families. It occupies a key position in the provision of employment. Public Utilities—Electricity, Gas, Water. These services are at present partly in the hands of public and partly of private bodies. The most important single step is to bring the entire business of generating electricity under full public ownership. The ' Grid' at present owns the main transmission lines, but not the power stations or the distributing centres. Inland Transport—Railways, Canals, main Road Services for both passengers and goods. Public ownership of roads and bridges is assumed. The railways are great customers of the heavy engineering and steel industries, and road services of lighter branches of engineering. Inland transport plainly needs an investment policy co-ordinated for all branches under a common public control. Sea Transport, together with Docks and Harbours. The public ownership of shipping services would enable the State to determine the level of employment in ship-building, which is of all industries the most liable to cyclical unemployment. Air Transport. All airports ought to be publicly owned, and all air transport services brought under public ownership, subject to international arrangements designed to make the air free to the services of all nations and to the running of some of the main long-distance services by fully international agencies. Land. British agriculture stands in need of a big plan of capital development, which cannot be carried through except with the aid of public money. There is also a recognised need for a big programme of afforestation. Moreover, urban land and land needed for new development must be brought under effective public control, in order to avoid land speculation and the appropriation of unearned increment by the landlords. The best way would be to nationalise the land outright: failing this, the State should at least acquire the ' development rights' in all land, and public acquisition of land needed for development should be made easy at prices not exceeding those of 1939. Both these things are proposed in the Uthwatt Reports.

State Administration I am by no means suggesting that these are the only industries which ought to be brought under public ownership. What I am saying is that these are the key industries to socialise for the purpose of giving the State the means of carrying through a really effective policy of Full Employment by the. method of Public Works. In control of these industries, the State could scale up or down its investment in such a.way as to keep the demand for capital goods at a satisfactory level, with the minimum of disturbance to the structure of industry and with the best assurance of getting good value for the money spent. From the standpoint of achieving Full Employment, it would not matter whether the State operated these industries directly, or through Public Corporations, or through local or regional authorities, provided that it kept in its own hands the determination of the level of investment in them. It

TAXATION AND SOCIAL SERVICES

17

would, however, matter if they were handed over to Corporations or local authorities in such a way that it was left to these bodies and not to the State to settle the level of investment. The policy of Public Works outlined in this chapter implies the existence of a National Economic Plan, administered by an Economic Planning Authority armed with wide powers. It falls beyond the scope of this booklet to discuss how such an authority should be constituted, or precisely what its functions should be. The essence of it, from the standpoint of employment policy, is that the State must be in a position to alter the total level of its demand for capital goods in such a way as to offset fluctuations in private demand and to keep the capital goods industries adequately and regularly employed. No doubt, it may be necessary from time to time for the community to alter the proportions of its total productive capacity used respectively in providing capital goods and consumers' goods and services. After the war, there will be a period during which a high level of investment will be required. Thereafter, the proportion needed may fall, and it will become necessary to transfer resources from the industries making capital goods to those supplying consumers' goods and services. But this in no way conflicts with what has been said in this chapter. I shall come back to it later, when I have discussed the question of maintaining the demand for consumers' goods and services. CHAPTER FIVE

THE MAINTENANCE OF CONSUMPTION T is in general true that, the less equally incomes are distributed, the larger Iconsumers' will be the proportion of total income saved instead of being spent on goods and services. What economists call the " propensity to

consume " is lower among well-to-do people than among the poor. This may result in ' over-saving,' in the sense of an attempt to save more than business men are prepared to invest; for what they are prepared to invest depends on their expectation of what will be consumed, and the more people save out of their incomes the less they consume. We have seen how the State can raise the level of investment by Public Works. It can also raise the propensity to consume by taking income from the richer classes and giving it to the poor, either by taxation or by insisting on high minimum wages. The Social Services are partly financed by taxing the better-off ; but they are very largely paid for by contributions which fall heavily on the poor. Their effect in re-distributing incomes is therefore very limited ; and there is everything to be said for developing Social Services financed out of general taxation. It is generally agreed that Family Allowances, which will have an excellent effect in increasing the consuming power of the poorer households, ought to be financed in this way. It is, however, often argued that heavy taxation of the richer classes, designed to bring about a redistribution of incomes in favour of the poor, will react on the profit-expectations of business men and make them less willing to invest. This is in the main a fallacy, at any rate where taxation is so arranged as to fall upon incomes and not on the costs of production.

18

CONTROL OF PRICES AND PURCHASE POWER

High taxation as such does not discourage investment or production, if the proceeds are applied to increasing the consumption of the poorer classes. It is, however, undesirable to increase taxation in bad times, upon whomsoever it falls ; for at such times it is bad to do anything that will decrease private expenditure. It is better in bad times to lower taxation, so as to give private citizens more money to spend, and to meet some part of public expenditure by incurring budget deficits, financed by borrowing or by the creation of additional money by the State. Such deficits can be wiped off by increased taxation of the larger incomes in times of prosperity, to the extent to which it is desirable to wipe them off at all. Avoiding Inflation It may not be desirable to wipe them off. There ought always to be enough money in circulation to provide for the exchanging of all that can be produced at prices corresponding to the costs of production. As productive efficiency increases, and more goods and services can be produced, it may be preferable to increase the supply of money rather than to enforce a fall in prices by restricting the amount of money available. But this is desirable only if there is an effective control over prices, in order to prevent the making of excessive profits as the costs of production fall. There ought always to be just enough money available to buy all that can be produced at prices which will cover the necessary costs of production, including only such profits as are regarded as affording a reasonable incentive to keep the means of production well employed. There is accordingly a limit to the extent to which the State or the banks should go in making more money available. When Full Employment has been reached, further emission of money can result only in inflating prices, without a corresponding addition to the output of goods and services. Inflation is best defined as emission of money beyond what is needed to finance production under conditions of Full Employment. We have -seen that the State can stimulate employment, not only by promoting Public Works, but also by putting additional purchasing power at the disposal of the consuming public. For example, the distribution of the war veterans' bonus in the United States stimulated consumption and employment at a time when there were large productive resources unused ; and after this war the paying out to consumers of the sums which have been withheld during the war as deferred pay can be used as a means of stimulating consumption when it shows signs of flagging towards the end of the post-war replacement boom. The introduction of Family Allowances would have a similar effect; and so would any arrangement for making presents of purchasing power to the poorer sections of the public. The effectiveness of such measures would, however, depend on their being financed in such a way as not merely to transfer purchasing power from one section of the public to another. What is needed in times of depression is mainly a real addition to the amount of purchasing power, not a mere transference from one section of the public to another. Money expended on Public Works and money granted directly to consumers have precisely the same effect in stimulating consumption. The difference is that, in the case of Public Works, the State acquires capital assets

RESPONSIBILITY OF THE STATE

19

to offset its expenditure, whereas in the case of direct grants of purchasing power no assets are acquired in return. It is in general better for the State to pay out money in return for services rendered—the more so because such expenditure directly stimulates activity in the industries which are most seriously depressed. But it may well be desirable to accompany a policy of Public Works, designed to stimulate investment, by a secondary programme of direct stimulus to consumption, meant to increase activity in the industries producing consumers' goods and services. The need for such a programme is greater where the tendency is for incomes to be very unevenly distributed. The more the State enforces a policy of high minimum wages and extensive Social Services in normal times, the less necessary will it be to resort in bad times to exceptional measures for the direct stimulation of consumption. When the State accepts responsibility for maintaining a condition of Full Employment, it acquires therewith a power to regulate the level of wages, and can enforce good conditions of employment without adverse effects on the level of production. The State can, moreover, by control of the supply of money and of the banking system, regulate the level of interest rates and, therewith, of the profits normally expected on invested capital. It can thus influence the distribution, of incomes, so as to reduce economic inequality. To the extent to which it does this, it will also increase the ' propensity to consume,' and thus diminish the tendency of the economic system to generate crises of under-consumption. A high ' propensity to consume ' is essential to the successful working of the profit system ; but such a ' propensity' can be secured, under the conditions of modern capitalism, only by extensive State intervention in industry, including the socialisation of those key industries which must be publicly controlled if a policy of' Public Works ' is to be successfully applied. Employment in the U.S.S.R. The general conclusion to be derived from the foregoing argument is that the direct stimulation of consumption should, in a mainly capitalistic system, play a secondary part to a policy of Public Works designed to maintain investment at a satisfactory level. In a completely socialised system, such as exists in the Soviet Union, different conditions apply. Where the State is in complete control of economic activity, the problem of unemployment disappears, though a certain amount of frictional unemployment may of course still exist. The only problem in such an economic system is to secure the best possible distribution of the available economic resources among the alternative uses to which they can be applied—that is, between investment and consumption and, in each of these fields, between the various forms of production which are possible with the available economic resources. There is for such a country as the Soviet Union no problem of maintaining employment: there is only the problem of ensuring that the available resources of production are put to the best possible use in the interests of the whole people. It may be decided, in the Soviet Union, either to devote more resources to immediate improvement in the standard of living or, at the cost of lower standards in the immediate future, to produce more capital goods so as to raise living standards later on. There is no fixed rule by which such a society can decide how much to consume at once, and how much to invest

20

INTERNATIONAL TRADE

with a view to increasing future consumption. The choice is open ; but, whatever choice is made, there is no reason why unemployment should arise, save in a purely frictional form. A capitalistic country, on the other hand, must always be faced by the danger of unemployment. It may be able to offset this danger by the right measures for stimulating either investment or consumption, or both at once ; but the danger remains inherent in any system which depends on the profit-motive to bring about the employment of any considerable proportion of the total available supply of labour. Unemployment is a disease of capitalism : it may be possible by a large extension of public enterprise and redistribution of incomes to reduce it to manageable dimensions without abolishing capitalism altogether ; but it cannot be entirely eradicated except under a system which makes need, instead of profit, the criterion of the worthwhileness of production and employment over the entire economic field.

CHAPTER SIX

INTERNATIONAL ASPECTS OF FULL EMPLOYMENT such as Great Britain, which depends largely on imports A COUNTRY of both foodstuffs and raw materials, has to take special account of

the reactions of Full Employment on its international position. If more people are in work and more is being produced and consumed, the demand for imports will tend to rise unless home production of goods which are normally imported can be considerably increased. If markets can be found for additional exports to exchange for the increased imports required, well and good. If, however, this cannot be done under the prevailing conditions of international trade, the country must either give up its full employment policy, or accept a lower standard of consumption in respect of the goods which have to be brought in from abroad, or set to work to produce at home more of the kinds of goods it has previously imported. Some of these goods —e.g. tropical products and raw materials which are not found at home—it cannot produce for itself. Some other things it can produce, but only at a higher cost than they could be bought at abroad if there were the means of paying for them. Yet others it may be possible by taking the right measures to produce at home as cheaply as they can be imported ; and for yet others it may be possible to find home-produced substitutes that are nearly or quite as good. The extent to which it is practicable to expand exports so as to pay for larger imports is bound to depend on the economic prosperity of other countries. If they too are following policies of Full Employment their need for imports will be greater, and world trade as a whole will expand. It is of the greatest importance to each country that other countries shall follow expansionist economic policies ; and it will be much easier for each country to follow such policies if the others are doing the same. Accordingly, there ought to be an endeavour to incorporate in the economic settlement which will follow the war an agreement to follow a

CREDITS AND MONETARY EXCHANGE

21

common policy of expansion. This involves the establishment in each country of an elastic monetary system, in order that economic activity may not be pulled up short by monetary deflation. It involves also special measures to enable countries whose economic and monetary systems have been dislocated by the war to start out on expansionist lines. This is one aim of the Keynes Plan, which proposes to give to each country an international banking credit on which it will be able to draw while it is recovering from the effects of the war and setting its economic house in order. As against this, the ' Morgenthau Plan ' prepared by the United States Treasury has the very serious disadvantage that, by forcing all countries back on the gold standard, it would put them all at the mercy of any deflationary tendencies that might manifest themselves in the United States. I have no space in this booklet to discuss this problem at any length. It is dealt with in my companion booklet in this series on the subject of postwar international trade.* Here it is only necessary to observe that the power of Great Britain or of any other single country to follow a full employment policy will be undermined if the gold standard is put back without any guarantee that the United States, and indeed all the leading countries, will follow internal and international policies designed to maintain production and employment steadily at a high level. In the absence of such guarantees, any country which sets out to maintain Full Employment must retain control over its own monetary system and over the rates of exchange between its own money and the monies of other countries (or at any rate must retain the power to fix and vary the value of its own currency in terms of gold). Development of the Backward Countries The pursuit of Full Employment as an aim of international policy requires that measures be taken to plan world production so as to achieve a high level of international trade, and that active steps be set on foot to develop the productive systems of the more backward countries, most of which were before the war suffering heavily from what economists call ' concealed unemployment' on the land. This means that there were in these countries too many people engaged in agriculture : indeed, in many areas a substantial part of the agricultural population could have been withdrawn from the land without any adverse effect on output, and even with positive advantage to output as soon as there had been time for technical standards to be improved. These countries, in order to achieve a condition of Full Employment, need to develop substantial industries and services of their own, partly for the production of cheap, standardised consumers' goods, but even more for the provision of improved services of transport, power-supply, land drainage and higher capitalisation of agriculture, as well as for the fuller exploitation of their mineral wealth. For these purposes they will need supplies of capital goods from the more developed countries. Some of these they will no doubt be able to pay for by exporting their own products ; but with a considerable proportion they will have to be supplied on loan, or even on Lease-Lend terms, until there has been time for their productive capacity to be developed. The more advanced countries will find themselves at the end * See The Planning of World Trade, by G. D. H. Cole (Odhams Press, 1944).

22

MAIN POINTS

of the war possessed of an economic equipment well suited to supplying just the kinds of capital goods which are most needed by the more backward areas ; and it will be much easier for the countries which possess this equipment to maintain conditions of Full Employment if they can use it in forwarding the economic development of the rest of the world. The point also is more fully discussed in my companion booklet on the future of international trade.* POINTS FOR DISCUSSION (see also p. 13)

1. What do you understand by " public works policy ? " 2. Is it necessary for the State, in order to be in a position to pursue a satisfactory public works policy, to own and direct the principal capitalusing industries ? 3. Which industries would you select as important to bring under public ownership and control from the standpoint of ensuring the maintenance of full employment ? 4. What steps are desirable to maintain the level of consumption ? To what extent should this be aimed at by means of redistributive taxation? Under what conditions is it desirable for the State to incur budget deficits in bad times in order to maintain consumption ? 5. To what extent should the State regulate the level of wages in order to bring about a better distribution of consuming power ? What contribution would family allowances make towards this ? 6. What international policy should Great Britain aim at in order to ensure the success of a full employment policy in. this country ? How far can a full employment policy be pursued in this country apart from what is done by other countries ? How would your answer to this question be affected by a decision to return to the Gold Standard ? 7. What contribution could a full employment policy in this country make to the improvement of the standard of life in the more backward countries ?

* See also Europe, Russia and the Future and Great Britain in the Post-war World, both published by G. D. H. Cole (Gollancz),

LABOUR AND THE POPULATION

23

APPENDIX A NOTE ON THE SUPPLY OF LABOUR AFTER THE WAR [The following particulars are mainly based on figures prepared for the author by Mr. P. W. S. Andrews, Statistician to the Nuffield College Social Reconstruction Survey. They take no account of war casualties, as no estimate can be made of these at present. Accordingly, the numbers of young men likely to be available are to some extent overestimated.] POST-WAR POPULATION

If the war is over by 1945, total population in Great Britain, without allowing for war casualties, can be put at a little less than 47 millions, or about half-a-million more than in 1939. Population of pre-war working age (14-65) will have increased by about 250,000, apart from war casualties. This of course means that it may in fact not have increased at all, or may have fallen if casualties are heavy. POST-WAR OCCUPIED POPULATION, UNDER 45 AND OVER 45

If there is no change in the proportions in the different age-groups at work, occupied population will be up by about 300,000, part from war casualties. But the occupied population under 45 will have fallen by about 250,000, whereas the occupied population over 45 will have increased by over 550,000. Of course, war casualties will tend to fall most on those under 45, and their effect will be to increase still more the proportion of working population over 45. EFFECT OF RAISING SCHOOL-LEAVING AGE

When school-leaving age is raised to 15, the effect will be to reduce the occupied population by about 400,000 ; and if it goes to 16, the total reduction will be nearly 900,000. REDUCTION OF JUVENILE LABOUR SUPPLY

When school-leaving age is raised to 15, and part-time education is made compulsory for one day a week up to 18, the additional reduction due to part-time continued education will be equivalent to the full-time employment of about 300,000 persons. If part-time education were on a half-time basis, the reduction would be nearer 800,000. Thus a minimum estimate of the probable reduction in juvenile labour supply is about 700,000, or much more than enough to cancel the entire increase in population.

24

GUIDE TO FURTHER STUDY PROBABLE REDUCTION OF TOTAL POST-WAR LABOUR SUPPLY

Thus total post-war labour supply, even apart from war casualties, is certain to be considerably smaller than the pre-war supply unless there is a large increase in women's employment. It is not possible to make any estimate of the number of women of types who were not in employment before the war who will wish to be in employment after the war. But it is clearly unlikely to be large enough to offset both the fall in juvenile employment and the loss due to war casualties. We can conclude safely that the total post-war labour supply will be smaller than before the war and that the average age will be considerably higher.

NOTE The present booklet travels rapidly over much of the ground which I have covered much more fully in a book, entitled The Means to Full Employment, which I issued through Messrs. Gollancz Ltd. in December, 1943. Any reader who wants to go on from this necessarily brief presentation of the subject is advised to turn to the book, especially if he is interested in the monetary and banking aspects of the problem or in a fuller exposition of the underlying theory. For the convenience of any group which may be using the present booklet as the basis for a series of discussions, I here give a rough key to the arrangement of the book in relation to the somewhat different arrangement used in the shorter treatment. Booklet 1. What is Meant by Full Employment ? .. 2. The Outlook for Employment after the War 3. On What Does the General Level of Employment Depend ? 4. Public Works and Employment .. .. 5. The Maintenance of Consumption .. . 6. International Aspects of Full Employment

Book Chapters I and II. (Not separately covered). Chapters III, IV and V. Chapters VI, VII and XII. Chapter IV (in part) and Chapter XI. Chapter X.

The book has in addition special chapters on Structural Readjustment as a means of combating unemployment (Chapter VII), on Monetary Measures (Chapter VIII), and on the effects of Monopoly on employment (Chapter IX). These subjects are treated incidentally in the booklet. G. D. H. C.

T344 Published by Odhams Press Ltd., London, and printed by W. P. Griffith & Sons Ltd. London & Bedford

MAIN

I

STAGES

OF

IRON

Ironstone Mines and Quarries

STEEL

PRODUCTION

Ore Imports

IRON

II

AND

ORE Limestone Scrap Iron

BLAST FURNACE

Coal, Coke

IRON

PIG PUDDLING FURNACE and FORGE I

IRON FOUNDRY

I

Steel Scrap

Cast Iron Stoves, Pipes

Wrought Iron

III

BESSEMER CONVERTER Basic

OPEN HEARTH FURNACE

Acid

Basic

ELECTRIC FURNACE

Acid

Alloy and Special Steels

INCOT

IV

V

STEEL

COGGING MILL

STEEL FOUNDRY

SEMIS, BALLETS and BARS

STEEL CASTINGS

FINISHING MILL

High Speed Steels

ENGINEERING WORKS

FORGING PRESS Tyres, Wheels, Axles

Heavy Plates

for

Ships, Boilers, Locomotives

Tin Plate Sheets — Tinplates

„

Boxes, Containers

Black Plates

„

Hollow W a r e

O t h e r Sheets

„

Motorcar

Rails

„

Railways, Tramways, Mines

„

Ships, Civil Engineering

Angles Joists and Girders Rounds and Squares W i r e Rods

Bodies and

Aeroplanes

Building, Civil Engineering

„

General

„ „

Engineering

Wire, Nails and Screws

NEW STATESMAN PAMPHLET

WHY NATIONALISE

STEEL? by

C. D. H. COLE

June, 1948. Reprinted July, 1948. Revised Edition, July, 1948

NEW

STATESMAN

10 Great Turnstile

AND

NATION

London W.C

1

CONTENTS I

2.

3.

T H E PROBLEM S T A T E D The Labour Party's Pledge.—When is Socialisation " Socialistic?"—Steel and Capitalism—Why "Disturb" the Steel Industry ? T H E STEEL I N D U S T R Y ANALYSED The History of Steelmakmg—Steel and Coal—Integration and Location—Where Does the Steel Industry Begin and End?— Pig-iron and Ore-mining—Scrap—The Non-Ferrous Metals— The Making of Ingot Steel—Alloy and Special Steels—Wrought Iron and Iron Founding—" Semis " and the Finishing Trades— Public and Private Sectors—The Federation and the Cartel—The Steel Problem in Western Europe—The State and the Federation. T H E FEDERATION'S PLAN EXAMINED .. . The Federation's Plan—How Much Steel Do We Need ?—Home and Export Targets—The Financial Aspect—Obsolete Plant and the Federation's Target—How Much Can We Afford to Scrap ? —Costs and Prices.

PAGE

3

7

18

4-

WHY NATIONALISATION ? .. .. .. The Case against Nationalisation—The Steel Industry's Record Considered—Steel Prices—The Fajl in Exports—Why the Steel Industry Tends to Restrictive Monopoly—Steel and Armaments —The Fears of Excess Capacity—Steel and the Balance of Payments —The Problems of Centralisation.

23

5-

T H E M E T H O D A N D T H E PROBLEMS The Method of Acquisition—Re-grouping and Planning—The Shortage of Capacity—The Steel Firms under Public Ownership— A National Steel Board—Labour Relations—Consultation and Control—The Board and the Minister—Problems of Administration —Research and Development—Costs and Prices under Public Ownership—Export Policy.

34

6.

T H E CASE CONCLUDED .. .. .. .. 42 The End of an Epoch—Steel and Economic Imperialism—The " Steel International"—Steel and the British People—Steel Policy under Public Ownership—The Problems of Quality and Location —The Coming Battle. DIAGRAMS AND TABLES The Mam Stages of Iron and Steel Production . . .. . . Cover 11 Exports Depend on Steel .. .. .. .. . . „ 111 Output of Steel Ingots in the United States and in Western Europe, 1937-9 and 1946-7 . . .. .. .. .. .. 17 The Iron and Steel Federation's Plan for Building and Scrapping by 1953. .. .. .. . .. 22 Steel Production in Great Britain, 1913 and 1924-1947 . . .. 24 Imports of Steel into Great Britain, 1913 and 1929-1937 . 24 British Steel Prices after 1929 . . .. .. .. 26 British Steel Exports, 1913 and 1929-1937 .. .. 27 Principal British Exports of Iron and Steel, 1938 and 1947 .. 31 Other British Exports Largely Dependent on Steel .. .. 31

WHY NATIONALISE STEEL? I THE PROBLEM STATED When the Labour Party drew up its programme, defining the range of industries and services which a Labour Government would seek to transfer to public ownership during its first term of office, only one manufacturing industry was included in the list. This was the steel industry. All the other forms of private enterprise singled out for socialisation, with one exception, were services which can be regarded as falling broadly within the " public utilities " range. The Bank of England, the electricity supply industry, the gas industry, road, rail and inland water transport, civil aviation—all these belong to the " service " group, and have from the outset been subject to special forms of public regulation and control. Parliament has been passing Acts for the regulation of banking, gas, electricity, and the various branches of transport for a very long time past; and even in the heyday of laissez-faire the need for special regulation of these types of service was seldom denied. The Bank of England was already a Chartered Corporation, working under rules laid down by law and in close association with the Treasury : the railways and canals were set up by special Acts of Parliament and were always subject to special forms of public control. Private electricity and gas undertakings were also subject to special parliamentary regulation ; and in these services a substantial section was already owned and operated by municipal bodies, side by side with the sections under private operation. In the case of electricity, a further step had been taken when the " Grid " was established and the entire system of mainline transmission brought under public ownership through the Central Electricity Board. Civil Aviation was also under regulation from the very beginning; and there had been in the decade before the war a large development of public control, through licensing, over road transport. When is Socialisation " Socialistic ? " Thus, there was nothing essentially " socialistic " in proposals to nationalise any one of these services. Indeed, in many countries, one or another of them has been transferred to, or established under, public ownership by Governments which no one could possibly regard as having any sympathy with Socialism. In Great Britain it was a Conserva-

4

WHY NATIONALISE STEEL ?

tive Government that set up the " Grid " under national ownership and a predominantly Conservative Government that established the London Passenger Transport Board. No doubt, there was something " socialistic " in proposing to deal at once with so many services and to make public ownership complete in services in which it existed only in part; but all the same the proposal to socialise " public utilities " raised no real question of principle between Socialists and AntiSocialists. The Conservatives could argue that the Labour Party was proposing too much socialisation, or that this or that particular proposal was inexpedient or badly drafted. They could not take any stand on principle against socialisation in this field, because, within limits, they had practised it themselves. The only industries, as distinct from services, which the Labour Government marked down for immediate socialisation were coal-mining and iron and steel manufacture. The coal industry was recognised as occupying a special position, both as forming with gas and electricity a member of the " fuel and power " group and as manifestly needing a thorough reorganisation and re-equipment which could be brought about only under unified control. The choice, in this industry, lay between public ownership and the creation of a vast private monopoly; and it was clear that, if the second course were taken, it would be necessary for the State to provide or guarantee most of the large capital sums needed for bringing the coal industry up to date. In such a situation there was no real choice. If the Conservatives, instead of the Labour Party, had come to power in 1945, they would have had to nationalise the coal industry whether they wished to or not, just as before the war they had been driven by sheer necessity to nationalise the ownership of the coal itself. The Conservatives could not find any ground of principle for opposing the nationalisation of the coal-mining industry; and in practice their opposition in Parliament and outside was perfunctory and half-hearted, because they knew that the change to public ownership and operation had to come. Steel and Capitalism Steel stood in a different category, both because it was a manufacturing industry which ramified into many others and because it could be argued that it was advancing in efficiency under private enterprise, whereas the coal industry manifestly was not. Coal-mining could be treated as belonging in effect, as a " fuel and power " service, to the " public utilities " group, and could be treated as a special case. Steel, on the other hand, was so integrated and interconnected with the whole group of metal-working and engineering industries, and so much

THE PROBLEM STATED

5

formed with them the key sector of modern large-scale capitalist enterprise, that its transference to public ownership and operation was bound to be felt as a blow right at the heart of capitalism. The capitalist system could maintain itself under conditions which required it to get its supplies of fuel and power from public sources, to use publicly owned transport agencies, and even to depend, in some degree, on a publicly operated Central Bank. But if Steel went the same way the position, it was felt, would become entirely different; for where, thereafter, would the citadel of capitalism be ? Certainly noc in the once preponderant textile industries, which had lost their leadership to the metal industries a long while ago. In the chemical and allied industries perhaps, for a time; but, if steel became a public service, how long would Imperial Chemical Industries be let alone ? In the heavy engineering and vehicle trades, again perhaps ; but how greatly would they be affected by the public ownership of their principal material—steel! The battle over the issue of nationalising the steel industry was joined the very moment the Labour Government took office. It was widely felt in capitalist circles that none of its other socialisation measures would really matter, or would involve any real advance towards Socialism, if only it could be stopped from nationalising steel. Ever since 1945 this battle has been going on behind the scenes, and the public has got occasional glimpses of its vicissitudes. There have been two main lines of argument designed to induce the Government, in this matter, to depart from its election pledge. One is that it is in practice impossible to separate the steel industry proper from its finishing branches, which stretch out into engineering and into many other industries, and that accordingly the Government cannot carry out its pledge without going further than it has any mandate to go—for it has, the opponents argue, no mandate to nationalise any part of the engineering and metalworking industries. The other line, which is at present the more used, is that the steel industry is doing very well as it is, and that it would be disastrous to " upset" it just now, when all the output it can deliver is indispensable for the success of the export drive and for British internal recovery. Why " Disturb " the Steel Industry ? This line is being plugged hard just now. The newspapers are continually telling the public about the great achievements of the iron and steel industry, its " record-breaking " output, and its drive for the highest efficiency under its present leadership. Public opinion, it is hoped, will react by concluding that it would be the height of folly to

6

WHY NATIONALISE STEEL

disturb an industry that is doing so well under its present ownership, and that anyone, from the Government downwards, who persists in pressing for nationalisation—above all during the present crisis of the national economy—must be actuated by " doctrinaire " motives, and cannot have the good of the country at heart. " Doctrinaire!" It is a Word that has a bad smell; and well those who use it are aware of its subtle effects. It means, I presume, pushing a theory, or a principle, into practice without a proper regard for expediency or common sense. I myself should regard as a doctrinaire anyone who proposed to socialise all industries in one fell swoop—for at least three good reasons. In the first place, I do not want to see all industries socialised, now or ever. Secondly, I do not believe it would be practicable to tackle efficiently all at once all the industries I do wish to see socialised. And thirdly, I recognise that the present Government has a mandate for only a limited socialisation programme. But this mandate does, plainly and unequivocally, extend to steel. I do not, however, and I feel sure the British Government does not, wish to socialise the steel industry on " doctrinaire " grounds. If I were a " doctrinaire," or if it were, there would be no particular reason for singling out steel,in preference to a number of other industries, for early socialisation. Chemicals, for example, or tobacco, or flourmilling would do just as well. The reason for wishing to socialise steel is not a mere general preference for socialisation : it is a particular belief that in the national interest and in the cause of speedy industrial recovery the steel industry ought to be brought as soon as possible under public ownership and operation. Those who wish to take this course do not agree that the steel industry is doing very well as it is, or that it is making the contribution it should make to the national effort. What is more, they believe that there are inescapable reasons why the steel industry cannot be expected to make its proper contribution while it remains in private hands and continues to be conducted in the interests of private profit-making. This pamphlet is an attempt to explain why this is so, and also, in a broad way, to suggest how, as well as why, the steel industry should be converted without more delay into a public service. But, before I take up the why or the how, it seems best to attempt to get a broad general picture of the steel industry and its main branches, and to attempt to answer the question of the scope of a sound and workable socialisation plan. If the steel industry, or a part of it, is to be socialised, over how wide a field should any immediate plan of socialisation extend ? If we take this question first, before attempting to discuss the general merits of the case, or the methods to be adopted

THE PROBLEM STATED

7

in any concrete scheme, we shall know a great deal better what precisely we are discussing than if we plunge straight away into the arguments for and against doing anything at all to transfer the industry, or some parts of it, from private to public ownership and operation. II THE STEEL INDUSTRY ANALYSED When, in the 1850's, Henry Bessemer introduced " mild steel," a new industrial age began. The metallurgists wagged their heads and told one another that the new substance was not really steel at all, but merely " carbonised iron "; and it was indeed a very different material from what had till then been called " steel" and been made by processes so expensive as to prevent its use except for cutting tools and for a few other special purposes for which great strength and hardness were indispensable. Bessemer " steel" and the other new steels which soon followed it onto the market were not steel, in the old sense of the word; but, whatever they were, they changed the face of industry, driving out cast and wrought iron from one use after another, combining cheapness with durability, and presently showing themselves capable of being endlessly adapted and combined with other metals to yield materials possessing widely different properties and suitable for an immense range of uses. Siemens, a decade after Bessemer, introduced his new " open hearth " process for making mild steel; Gilchrist Thomas, Gilchrist, Martin and others added their improvements, which made it possible to use for " steel "-making ores with a high carbon content, such as those of Lorraine. As " steel " replaced iron, a great process of change and re-equipment set in. The old iron industry contracted, and new steelworks had to be built to replace its superseded plants. In the course of this great conversion, between the 1860's and the 1880's, the modern steel industry came to birth. Of course, a great deal has happened to the industry since those pioneer decades; and throughout men have gone on making steel of the old high-quality types, and have been devising many new " special" steels for high-grade work. But ever since Bessemer and Siemens the steel industry has been primarily, in terms of output, a producer of cheap steel for widespread industrial use. " Special" steels of high quality are still too expensive to find more than a limited market in either peace or war. In war, as in peace, the emphasis is on mass-production ; for vast quantities are needed, and much of it need not be of high quality. A biscuit tin, or even a motor-car body, need not be built like an " ironclad." Modern metallurgists, by mingling metals, have

8

WHY NATIONALISE STEEL ?

found ways of producing steels that are just as hard, just as tensile, just as strong as they need to be for each particular use to which they are to be put. Not much modern steel is " just iron with a dash of carbon " ; in the steel industry, iron and a wide and growing variety of other metals—manganese, tungsten, vanadium, chrome, and a great many more—are intimately linked together. Where does the steel go ? Into ships, motor-cars, and aeroplanes. Into railway rails, locomotives, carriages, bridges, and stations. Into docks and dock plant. Into power stations and gasworks. Into buildings, as structural steel and also for fittings and equipment. Into factories, for machine-tools and engine-plant, as well as structurally. Into tanks and containers of every sort and size, down to household cans and tins of tobacco. Into tubes and into wire and nails, bolts and screws. Into railings and piers and gratings. Into cutlery and tools and agricultural implements. In short, into most things that are not made of some textile material or of wood or of paper—which nowadays is mostly wood. Steel, in a word, is everywhere ; it is the very basis of modern industrialism. Steel and Coal Steel depends on coal, as well as on iron ore and other metal deposits. It takes very different quantities of coal to make a ton of steel, according to the nature of the ores used, the processes of manufacture, and the type of steel required ; but, all round, technical progress is continually reducing the amount of coal used, directly or indirectly, in the making of a ton of steel. Part of the reduction is due to integration of successive processes, as when the waste gases generated in the blastfurnace are recovered, instead of being allowed to escape, uselessly or sometimes noxiously, and are employed to provide energy for a subsequent stage of production. But, in face of all economies in fuel, the link between coal and steel remains very close. The steel industry cannot flourish except on the foundation of a well-organised industry of coal-mining. Until British coal again becomes plentiful enough to afford supplies ample for the steel industry's needs, as well as for the requirements of other users at home and abroad, the development of steel production is bound to be held back. Even when the coal shortage has been thoroughly overcome, fuel economy in steel-making will continue to be a vital matter; for we shall be in a position neither to waste coal nor to tolerate the high costs of production which too much consumption of fuel involves. It is indispensable, not only now, on account of the coal shortage, but also for the future, to make the greatest possible effort to keep down the steel industry's consumption of fuel.

THE STEEL INDUSTRY ANALYSED

9

Integration and Location This is a question not only of continually improving the technical equipment of the industry, on foundations laid by steady and well directed research, but also of the correct siting of works and the fullest possible use of opportunities for continuous processing from stage to stage. It is necessary to take every chance of utilising waste gases as fuel for subsequent processes, as well as of avoiding the solidification and re-heating of the material wherever it can be used molten in the successive stages. Much of the steel industry grew up at a time when the need for such practices was not realised, or the opportunity for them did not yet exist; and the result is still seen in faulty location or in the divorce of processes which can best be carried on together in the same establishment. Besides, the exhaustion of some ore-fields, the change-over to imported ores, the increased use of scrap, and the changing proportions of coal or coke used in relation to other ingredients, have altered the economic conditions affecting location, and call for extensive re-designing of the industry. A good deal has been done already to recast some sections of the industry in the light of these new techniques; but much remains to be done, above all at the blastfurnace end and in the development of sheet steel production, and the necessary changes can be made much more easily under common than under divided ownership. The further this integration of successive processes is carried, the more marked is the tendency for the later processes of steel manufacture—or for a good number of them—to be best carried on under the same auspices as the earlier. That is why it is quite out of the question, if nationalisation is to occur at all, to stop short at the taking over of the primary processes of producing merely raw, or " ingot" steel. Already the firms which make raw steel m most cases carry on a number of subsequent processes m the same works as parts of a single, closely integrated concern; and it would be grossly uneconomical—and indeed mere folly—to break up these intimately connected operations. A steelworks which makes both raw and semifinished, and very likely in addition some types of finished steel, must be nationalised as a whole, or not at all. It forms an essentially indivisible economic unit. Where Does the Steel Industry Begin and End? Nationalisation, then, cannot stop short at the stage of crude steel production. It must, however, stop somewhere, if it is not to spread out over iron-founding, engineering, and a host of other industries to an extent that the Government certainly does not have in

10

WHY NATIONALISE STEEL ?

mind. It must also begin somewhere; for the industry stretches far back as well as forward. Steel is made mainly of iron, nowadays with a good deal of admixture of other metals and, in the " open hearth " and electric process, with a large proportion of " scrap." The scrap comes partly from the steelworks themselves, partly from engineering and other factories, and partly from second-hand sources. The iron is made in blast-furnaces, which are sometimes integrated with the steelworks and sometimes separate. It is made with iron ore that is about two-thirds home-produced and about one-third imported from abroad. The making requires limestone as well as coal, and limestone quarrying as well as iron ore mining is therefore a preliminary process. The other metals that are blended with iron to make particular kinds of steel are largely imported, but are partly mined or produced at home. They require to be processed : this is mainly done in this country, and thus close connections exist between the steel industry and the importers, producers and processors of a number of the non-ferrous metals. Pig-iron and Ore-mining If there is to be nationalisation, where is it to begin ? I am writing without any inside knowledge of what the Government will propose, but obviously it must include the production of pig-iron in the blastfurnace section of the industry; for, as we saw, this stage is considerably and increasingly integrated with the production of raw steel from the pig or directly from the molten metal as it emerges from the blastfurnace. It is no less clearly necessary to include the coke-ovens, which are largely carried on as part of the same establishments as produce pig-iron. Most of the limestone quarries which produce limestone for use in iron and steel making are already owned by the iron and steel concerns, and will naturally be included in any scheme of transference to public ownership. A considerable proportion of the mines and quarries which produce iron ore are also owned by the iron and steel makers, and in a number of cases, including the modern works based on mass-production of steel from low-grade home ores, are operated as sections of integrated concerns which cover every stage from the quarrying of the ore to the production of at least semi-finished steel. The whole business of iron-mining and quarrying obviously needs to be in the same hands as the production of pig-iron and steel. The problem of the imported ores is rather different. Some British iron and steel concerns own, or hold shares m, iron-mines abroad, and import a proportion of their own supplies—subject of course at present to the "control" exercised by the Government. Other ores are bought from independent foreign companies or syndicates;

THE STEEL INDUSTRY ANALYSED

II

and there is, of course, also a small import of pig-iron and bar iron, especially of high-quality iron from Swedish and other sources. In recent years, increasing use has been made of British ores, despite the low quality of most of the remaining British supplies—for we have used up most of the high-grade deposits of Cleveland and Cumberland. The increasing use of British ores arises largely in connection with the home production of the cheaper, low-quality steels which we used to import mainly from Belgium and Germany. Imported ores, which are bulky, can naturally be used most economically in works near the ports ; whereas most of the deposits of British low-grade ores lie well inland. Roughly, we now produce at home twice as much iron ore as we import; but the average metal content of the imported ores is considerably the higher. It has to be decided, in any plan of nationalisation, whether the authority set up to conduct the iron and steel industry as a public service is to do its own buying of imported ore (and also of pig-iron) or is to buy from some other importing agency, perhaps based on and taking over the functions of the existing " control." The sensible course would surely be to let the new Iron and Steel Board, or Corporation, or whatever it is to be called, have its own buying department for imports, subject, of course, to any regulations the Government may have to impose in the interests of the balance of payments. The Iron and Steel Federation already handles pig-iron imports on behalf of the privatelyowned industry; and this function would naturally pass to the new Board. Scrap In the past, the market for iron ores has been closely related to the market for scrap; for, within limits, it is possible to vary the proportions of ores and of scrap used in the blast-furnace as well as the proportion of pig and scrap used m later processes. The scrap used in steelworks is about half bought from outside sources and about half originates in the works which use it. An integrated steel industry would itself produce a high proportion of the scrap which it required. But it would also need to purchase from outside both second-hand scrap and scrap originating, say, in engineering and other works at home, or procurable from abroad. At present the question of getting supplies of scrap from Germany is a very big question, complicated by the necessity to pay in dollars for all German purchases since the Americans took over the main financing of the import requirements of the Western Zones. The open-hearth process by which most British steel has hitherto been produced requires a high proportion of scrap, whereas the Bessemer process involves relatively little scrap. The question is whether the

12

WHY NATIONALISE STEEL ?

buying of scrap from outside shall be organised directly in all cases through the nationalised industry, or whether there shall be still an intermediary class of scrap merchants, at any rate where sorting and treatment of second-hand scrap are required. Here again, it would seem to be best for the authority controlling the nationalised industry to take over the entire job. The Non-Ferrous Metals Non-ferrous metals raise a different problem; for many of them are linked to industries other than iron and steel, and even where the link with iron and steel is close, they may have other uses. Probably it will be best for the present to let the non-ferrous metal trades, including the importing merchants, carry on as they are, under government control, and to let the steel industry buy what it needs from them without taking over production or processing or importation. It will, however, be necessary to ensure adequate supplies, including home-produced supplies where they can be had; and there will evidently need to be closely co-ordinated policies of development in order to take full advantage of the growing possibilities of the various ferro-alloys, with their wide range of different properties adapted to different uses. The Making of Ingot Steel So far, then, we have in view, if nationalisation is to occur at all, a publicly owned industry beginning with iron-ore mining and quarrying, and including pig-iron (blast-furnace) production based partly on homeproduced and partly on imported materials. Next in order comes the production of raw steel, which is itself a highly diversified product of widely varying cost and character. The main bulk of British production—in 1946 nearly five-sixths of the total—is " open-hearth " basic steel; about one-twelfth is " open-hearth acid" steel; about oneseventeenth is " basic Bessemer "—the cheapest kind; and a still smaller proportion, but of high average value, is " alloy " steel, largely produced by electrical processes. The quantity of " high-speed " tool steel, which alone is " steel" in the old, pre-Bessemer sense of the word, is smaller still. This structure is quite different from that of the American and German steel industries, and the average quality is higher, even apart from the British reputation for producing high-grade alloy steels and high-speed special steels for cutting edges. The position of the British steel industry, in the mass-production as well as m the more specialised sections, depends greatly on quality. Open-hearth processes m general yield products of higher quality than the Bessemer converter, because

THE STEEL INDUSTRY ANALYSED

13

they make possible better continuous control; and Great Britain as a producer of ships and machinery and other metal products which have to stand hard wear and strain uses a large proportion of high-quality steel. In the United States on the other hand a great deal of cheap steel goes into mass-produced motor-cars; and even m other uses many things are not made to last nearly so long as here. Our cheap steel goes largely into motor-cars or into various types of container or box, chiefly in the form of tinplate or plate of other types. Alloy and Special Steels Clearly any plan of nationalisation must embrace all forms of largescale steel production, whatever the processes employed. Moreover, the production of alloy steels is already so closely integrated with the mam branches that it cannot be severed from them. The only separable section is that which produces special steels, mainly for tool-making. This is largely m the hands of separate firms, including the larger toolmakers, and unless it is proposed to take over tool-making, which is really a separate industry, it may be best to leave the " special" steelmakers out of the nationalisation plan, or at all events, rather than take them over, allow them to continue private production under licence. There is enough that must be taken over to make it undesirable to extend the range of the new nationalised controlling agency over anything that it can do without, and not lose efficiency; and " special " steelmaking seems to be a case in point. Wrought Iron and Ironfounding There is another case falling within the range of "iron and steel," which are m many respects inseparable, but outside " steel" itself. The old wrought iron industry, which has been driven out of one activity after another by the development of steel, is really quite a separate business, which it seems unnecessary to include. The same can be said of the iron castings industry, which turns out stoves, grates, fenders, and similar products. Some ironfounding, which is carried on in close connection with blast furnaces, must be taken over if they are; but this is only a small proportion of the whole trade. " Semis " and the Finishing Trades We have now added all the main branches of crude steel production to the earlier branches of iron and steel that must be included in any workable plan. It is, however, entirely out of the question to stop at this

14

WHY NATIONALISE STEEL ?

point; for most steelworks do not stop at the production of crude steel. Some of their crude steel they sell to other firms to work up to further stages; but a large proportion they themselves use in producing what are called " semis " and also a number of kinds of finished steel goods. They do this sometimes in different works under the same ownership, but more often in the same or contiguous works, as parts of a closely integrated succession of processes. The main forms of " semis " are billets, blooms and slabs—that is, lumps of more or less refined steel conveniently shaped for use in subsequent processes—and bars designed for the production of various forms of sheet steel and tinned or other plates. These " semis " are " rolled " products ; and there is no possible way of severing their production from that of the crude steel of which they are made. Moreover, apart from the " semis," the main steelworks turn out a large proportion of further finished products, such as sheet steel and plates for tinning or galvanising or for other forms of treatment, railway and other rails, joists, girders, and many kinds of steel used in structural work, tubes, especially heavy tubes, tyres, wheels and axles, and a fair range of other products. In this wide field, it is clear that a great deal must be included in any plan of public ownership that can be expected to work. Where any of these processes are carried on either in the same works as the making of crude steel, or in contiguous or closely-connected establishments, it would be manifestly a source of inefficiency to attempt division. Where they are carried on m really separate works, two possibilities arise. These works may be independent, or they may be owned or controlled by firms which carry on the production of the crude steel. In the second case, if firms as such are taken over (we shall be coming to that later), they will be acquired together with the firms that own them; but it will be possible, if it is so decided, to reconstitute them as separate businesses under separate ownership. Where the finishing firms are already independent, they need not be taken over at all unless it is decided that they should be. If these firms are not taken over, or if some which are are handed back to private enterprise, a situation will arise in which products of the same type are being made partly by private enterprise and partly by a nationalised service. Public and Private Sectors Well, why not ? Except in the case of a relatively small number of clearly defined industries and services, there is no practicable way of nationalising some industries and leaving others in private hands

THE STEEL INDUSTRY ANALYSED

15

that does not involve overlapping at the edges, and therewith a terrain in which public and private enterprises producing the same, or closely similar, types of goods will exist side by side. I can see no good reason why they should not so exist, and compete with each other : indeed, the co-existence may help to keep both of them up to the mark. This, of course, implies that public services will be so conducted as to cover their costs—or that, if for any reason a particular product is to be sold below cost, any subsidy shall be made available to the private as well as to the public producer. This, however, is the basis on which, in normal cases, any plan of socialisation ought clearly to be based. There is no valid reason why finished steel products manufactured under public and under private enterprise should not compete : a public monopoly is necessary only where there is good cause for complete unification in the interests of efficiency—for example, in order to make possible mass-production based on a high degree of specialisation of works to the scientific manufacture of particular goods. Thus, in the case of steel, it will be necessary for public ownership to extend over the whole of certain types of productive plant—e.g. large-scale steel production—over a high proportion of certain other types, which are mainly carried on in close connection with such production; and over smaller proportions of other types, which are integrated in varying degrees with crude steel-making. In general, a nationalisation plan for steel can stop short of those types of finishing which are independent of the earlier processes; and it may even be desirable to hand back to private enterprise—possibly with a continuing element of public shareholding—some of the factories which are at present under the ownership or control of the main steel-making firms or combines. Where exactly the line can best be drawn can be decided only by taking each case on its merits. In the majority of cases steel foundries, and in some steel forges, are more closely related to the engineering group of industries than to steel; and, where this is so, they should obviously be left out of a steel plan, unless there are very cogent reasons on the other side in certain particular instances. What must not be done, however, is to break up inter-connected units which are economically sound, in pursuance of any theoretically conceived line of demarcation between the sectors that are and are not to come within the scope of the socialisation plan. The Federation and the Cartel At present the Iron and Steel Federation, with the various " product associations " that have been linked up with it, covers a very wide range of finishing processes as well as the whole body of

16

WHY NATIONALISE STEEL ?

producers of crude and semi-finished steels. In practice this has meant that the main influence has rested with the big firms, which produce both nearly all the crude steel and a considerable proportion of the more finished products, and that the interests of the independent finishers, who want crude steel to be cheap, have taken second place. This has been the position especially since the tariff introduced in 1931, and thereafter the arrangements made between the Federation and the foreign producers through the International Steel Cartel, prevented the finishers from getting cheap steel from Belgium or Germany. With the nationalisation of the big steel-making firms, the key position would pass to the body which was put in control of the public section; but there would be the essential difference that this body would be aiming not at maximum profit for itself, but only at covering its costs and, subject to this condition, supplying steel as cheaply as possible to its competitors equally with its own finishing plants. No doubt, even under the system which existed in the 1930s, it was open to the aggrieved finisher to complain to the Import Duties Advisory Committee if he felt that he was suffering from monopolistic practices on the part of the crude steel-makers. The I.D.A.C. was given the function of regulating the practices of the Federation, with the power, if it thought fit, of removing or reducing tariff protection. This, power, however, even if the I.D.A.C. had been at all disposed to use it, would not have been of much effect in face of the close arrangements made between the British and foreign steel-makers through the International Steel Cartel. It was the Cartel's policy, and not the tariff, that in fact regulated the import of steel into Great Britain; and the prices charged in the British market were settled by the Federation pretty much as it pleased. The Steel Problem in Western Europe One big question that will have to be faced in the near future is that of the future organisation of steel production in Western Europe as a whole. The world is short of steel: the Americans are increasing their production fast, but their consumption fully keeps pace with it. Germany, which used to be by far the largest European producer, has had its capacity drastically cut down under the conditions imposed by the victors, and is still able to produce only a quantity much smaller than the revised " Potsdam " terms impose. French output is only at two-thirds of the pre-war level, Belgian output is above the level of 1938-9, but still well below that of 1937. On the following page, in metric tons, are the figures for the United States and for the leading Western countries:

OUTPUT OF STEEL INGOTS Monthly Averages, 1937-9 and 1946-7 (in Thousands of Metric Tons)

United States Great Britain Germany France Belgium .. Luxembourg Italy.... Sweden .

1937

1938

1939

1946

1947

4,282 1,101 1,669 660 322 209 175 94

2,400 881 1,934 518 190 120 194 83

3,991 1,118

5,035 1,074 244* 367 190 108 96 101

6,410 1,057 324* (estimate) 479 241 143

662 252 146 190 99

l42 (av.of 11mths.) 99

* Three Western Zones only.

In face of the West European shortage, and above all of the decline in the German production, there will obviously be for some time to come a market for all the steel Great Britain can spare. Under the Marshall Plan the countries of the West have now agreed to work together in planning their economic recovery; and an important part of their planning will relate to the extent and character of the redevelopment of the German steel industry. Some organisation will have to take the place of the pre-war Cartel—though not in the same restrictive spirit—in planning the future of the steel industry over Western Europe as a whole; and it is perfectly clear that, in the new world situation, this task will have to be performed directly by the European Governments and not through any private cartel of capitalist interests. Whatever may happen nationally, steel, on the international plane, is bound to continue under government regulation and to be planned by the co-operating Governments as an integral element in the general recovery plan. This is not a matter of political choice; it arises out of the sheer necessities of the case, whatever may be the political complexion of the Governments in power. The State and the Federation At the national level, any plan of public ownership covering the main branches of iron and steel manufacture will evidently need to include provisions for close interworking between the Board or Corporation that is put in charge of the nationalised sections and the firms which are left to carry on production for private profit. This will apply not only to the independent finishers but also to other important groups of steel consumers, from the already socialised railways and mines to the many branches of the engineering and shipbuilding and other B

18

WHY NATIONALISE STEEL ?

metal-working trades and to civil engineering, building, and many other industries and services. The independent steel firms may decide, after nationalisation of the other branches of the steel industry, to retain some sort of Iron and Steel Federation to represent their common interests; and it may even be decided that the sections of the nationalised industry concerned with particular products covered by "product associations " shall maintain their connection with the Federation in its new form. Clearly, however, much of the work hitherto done by the Federation—as well as by the " Control " at the Ministry of Supply which has been the Federation's alter ego since 1939—will have to be transferred to the new body established to administer the socialised sections of the industry.

III THE FEDERATION'S PLAN EXAMINED In May 1946 the British Iron and Steel Federation, in response to a request from the Government, produced a plan for the development of the iron and steel industry, estimated to cost £168 millions at the prices then current and to be carried out by stages up to 1953—that is, in about eight years. This plan was mainly technical and dealt chiefly with proposals for the building of modern blast-furnaces and steelworks to replace obsolete plant and to provide for an increase in total output. It gave details of the new works to be constructed, of existing works to be modernised, and of the methods to be adopted in concentrating particular types of output at fewer points, in order to develop massproduction, and in re-arranging the units of the industry in the interests of fuel economy, lower transport charges, and other changes designed to reduce costs. In the ground covered, the Iron and Steel Federation's Report resembled the Reid Report on the requirements of coal-mining : the difference was that it was put forward not by a disinterested technician, but by the representatives of the industry, who were of course interested parties. This factor of self-interest did not impair the technical soundness of many of the proposals included in the plan. Nobody supposes that the steel industry wishes to be inefficient or lacks good technical advisers. Indeed, if the steel' industry is nationalised, the new public authority that takes charge of it will undoubtedly press on with most of the projects put forward by the Federation two years ago. The faults of the Federation's plan were not that it was technically bad—except

THE FEDERATION'S PLAN EXAMINED

19

where vested interests happened to run counter to technical considerations, as they sometimes did. The faults lay in the scale of the plan— that is, in its marked underestimate of the total capacity required, and in the methods proposed for financing it. How Much Steel Do We Need ? Take first the question of capacity. The British steel industry has to meet the requirements both of home consumption and of the export trade, minus such imports as are allowed to be brought into the country and can be procured, in face of world shortages, if they are allowed. Before the war annual home consumption of steel was somewhere between10½and11½million tons. It was over of millions in 1937, the year of highest employment. Ten years earlier steel consumption had been running at an annual rate of 7 to 8 million tons, and before 1914 at about 5 millions. Between the middle twenties and 1937 it rose by about 50 per cent: if it had risen till now at the same rate it would have reached about 18 millions. Actually, war held up such modernisation and expansion plans as the industry had begun to carry out before 1939, and production, at the beginning of 1948, was not much above 14 million tons.* What did the Federation propose to do in order to meet expanding home demand in 1946? Despite the arrears of unsatisfied demand accumulated during the war, despite the crying need for steel for the re-building of Britain and the re-equipment of British industry, and despite the evident necessity of a really big expansion of exports, the Federation planned for a total output capacity of not more than 16 million tons, and for an actual output of about 15½ millions. Moreover, these figures related not to 1947, but to the completion of the plan six years later, by which time there would surely have been a large further growth of demand. This total of 16 million tons was divided by the Federation into 13 millions for the home market and 3 millions for export. Thus, the plan allowed for a home consumption of only1½millions more than was actually consumed in 1937. This in face of the adoption of a policy of full employment as well as of the factors listed in the preceding paragraph ! Nothing short of a tremendously monopolistic price policy could possibly keep demand down to such a level. If it were kept down, what would become of full employment, and how could other industries flourish in face of the shortage of their most vital material ? Nor was the export figure less surprising. The Federation based it on the fact that British steel exports had fallen in the years just before * By April, 1945, the annual rate was over 15 million tons

But see p. 27.

20

WHY NATIONALISE STEEL ?

the war from 3½ to 2½ million tons a year. But why had they fallen? Because the Federation, as a partner in the European Steel Cartel, had given up export competition in many markets and was charging high prices and concentrating its efforts chiefly on the home market, in which it enjoyed a monopoly. Was it really supposed in 1946 that Great Britain, under an imperative necessity to raise total exports to at least 75 per cent above the pre-war level, and under a particular necessity to increase exports of capital goods based on iron and steel, could accept a target of a mere 15½ million tons for both home consumption and exports—and that for as far ahead as 1953? The thing was ridiculous; but it was what the Iron and Steel Federation solemnly proposed. Home and Export Targets Clearly, the output target has to be of a totally different order from this. If total exports are to rise by 75 per cent at least, exports of iron and steel must rise by something nearer 150 per cent—to 6 or 7 million tons at the very least. Development plans in the less advanced countries could well absorb much more than that, if more could be supplied. As for potential home demand, by 1953, can it possibly be put at less than 20 million tons, including the increased quantities that will be used up in the larger volume of exports of engineering and other metal goods, including ships and vehicles, made largely of steel ? I know very well that 26 million tons is an impossible target for the iron and steel industry to reach, under any auspices, by 1953. There is not enough ore; steelworks and blast furnaces take a considerable time to build; and Great Britain is short of labour and of the industrial capacity needed for building them. But this was not the ground on which the Federation based its all too modest programme. The Report seriously argued that in all probability the total demand for British steel in the middle 'fifties would not be likely to exceed 15½, or at most 16, million tons. Persons who could put forward such an estimate are plainly not to be trusted to control the reorganisation of an industry on which, more than on any other save coal, the economic survival of Great Britain depends. The Financial Aspect The second outstanding fault in the Federation's Report was its casualness over finance. Wanting £168 million, at current prices, spread over 7 or 8 years, it estimated that the steel firms could find, say, from

THE FEDERATION'S PLAN EXAMINED

21

£6 to £7 million a year—not more than a quarter of the total. It threw in another £10 million, as a lump sum to be received back from the Government to cover repairs deferred during the war; and it proceeded to demand higher depreciation allowances and allowances for obsolescence from the Government by way of tax remission, concluding that, given these, the industry might be able to find about half the total sum needed. As for the other half, it said only that " there should be no insuperable difficulty " in finding it by the raising of further capital. It urged that the steel industry would have a strong preferential claim on available funds, especially as two-thirds of its planned expenditure would take effect in the Development Areas. It did not say that it wanted a subsidy or a government guarantee; but the inference was fairly plain. Obviously it would be quite out of the question for the steel firms to raise anything like the amount required, even for their own inadequate plans, without government backing. Such capital as they could raise on their own would be got only at high interest rates, or on onerous terms of issue. In effect, they were asking the Government to stand behind them in carrying through a plan designed, not to give the nation the steel it needs, but to entrench their existing monopoly. Obsolete Plant and the Federation Targets I do not propose here to examine the detailed plans which the Federation put forward. As I have said, most of them were technically sound as far as they went: their fault lay in not going nearly far enough. One or two points that came out in connection with them, however, do call for some comment, as indicating the size of the job that has to be tackled in order to put the iron and steel industry into a satisfactory state. The parts of it that are in the worst state at present appear plainly from what is said in the Report. Thus, out of a blast-furnace capacity (for pig-iron making) of 7,320,000 tons, the Report states that only about 3 million tons can be obtained from plants that are reasonably efficient and up to date. Plant for producing from 4½ to 5 million tons (allowing for idle capacity, which is not wholly avoidable) needs to be built in order to replace obsolete units, quite apart from what is needed for increasing total output. The position is not quite so bad as this in most other branches; but in nearly all a very large proportion of the new plant proposed in the Federation's plan is for replacement of obsolete units, and not for expansion. This appears plainly in the following table, which is based on the figures given in the Report.

T H E FEDERATION'S P L A N FOR B U I L D I N G & SCRAPPING BY 1953 (Thousand Tons) New ExistBuildNew Increase Plant ing Cap- Build- Future ing as in to be acity ing capacity capacity scrap% of proped future posed capacity 7,320 Blast-furnaces Steel furnaces 14,100 3,700 Billet mills 1,750 Plate mills Joist, Rail and Heavy Sec2,500 tion mills Sheet and Tin2,400 plate mills Wire Rod 675 mills Light Section, Bar and Strip 2,500 mills

4,750 5,835 2,200 500

9,100 15,950 4,500 1,750

650

2,500

1,100

2,700

150 850

1,780 1,850 800

Proposed percentage increase in total capacity

2,970 3,985 1,400 500

52 37 49 29

24 13 22 0

650

26

0

300

800

41

12½

750

75

75

20

II

2,800

300

550

30

12

These figures make plain how very large, on the Federation's own showing, is the proportion of out of date plant that is only fit to be cleared away as speedily as it can be replaced. This bad plant, as long as the industry remains under private ownership, will hold up prices to a grossly inflated level; for even under government control private business has to be allowed a profit and, short of actual subsidies (which are given in some cases) all plant that is retained in use has to be made to pay. This involves fixing selling prices high enough to cover the costs of the inefficient producers, and prevents the economies of the better plants from being passed on to the consumers in lower prices. A public concern, of course, could average costs, and thus reduce prices at once, not to the full extent that would be possible when the old plant went out of use, but in proportion to the relative outputs produced at high and low cost. How Much Can We Afford to Scrap ? This is a vitally important point, because it is all too plain that, faced by a very much bigger total demand for steel than the Federation has allowed for, we shall not be in a position to scrap even inefficient plant at anything like the rate it proposed. For want of better, much of the old plant will have kept in use for a good many years to come. If the industry stays in private hands, this will mean that high prices, based on the costs of the inefficient works, will stay too, hampering industry at home and putting disastrous obstacles

THE FEDERATION'S PLAN EXAMINED

23

in the way of increasing exports both of steel and of the countless products for which it is a material. Can anyone in his senses really contemplate such a prospect ? Costs and Prices A further point is that the Federation, to say the least, is not at all optimistic about the reduction of costs that will be achieved even in the new plants which it proposes to build. For example, in the case of pig iron the fall in cost as between new plants and the least efficient 20 per cent of the plants now in use is put at no more than21½per cent, and for steel billets 25 per cent; and, as an offset to these savings, there is charged up interest on the capital cost of the new plant, so as to reduce the total savings to 7½ per cent for pig iron and to under II per cent for the steel. These estimates, of course, depend partly on the extent of the technical economies themselves and partly on the level of interest charged in respect of the new capital expenditure. The State, being able to borrow more cheaply, could cut down the latter figure : the estimate of the technical saving seems lower than it should be practicable to achieve by really thorough reorganisation. IV WHY NATIONALISATION? We have now seen, broadly but sufficiently for the purpose, what will need to be nationalised, if the steel industry is to be nationalised at all. But of course the question is, whether it ought to be nationalised or not. To this we must now turn. The case against nationalisation, we have seen already, is generally rested at present on the contention that the industry is doing very well as it is, under private ownership, and that it would be folly to start " monkeying " with it while the country is in the present state of crisis. Nationalisation, it is argued, would only upset the plans that are being carried out by the men who are at present m charge, and would mean less steel and not more. Is there any truth in these contentions ? Of course it is true that nationalisation would upset the present leaders of the industry. They have been making that clear enough ever since the Government first mooted the question. They refused to take any part in discussing with the Government any matter connected with nationalisation, and demanded that they should be let alone, to get on with the reconstruction of the industry in their own way. In short, they were out to fight against nationalisation, despite the Government's mandate for it, by every means in their power. I mention this, not

WHY NATIONALISE STEEL ?

24

by way of blaming them—for they no doubt believe that private enterprise is a good and public enterprise a thoroughly bad thing. I mention it simply as a matter of fact. That the capitalist owners of the steel industry are against nationalisation, and would be " upset " by it, goes without saying, and has no bearing on the merits of the question either way. The Steel Industry's Record Considered But what of the statement, so often made, that the industry is doing a fine job under private ownership and ought, on this score, to be let alone ? Just where does this " fine job " come in ? It is perfectly true that, from the technical standpoint, the steel industry is a great deal better organised than it was after the first world war—when, to speak bluntly, it had got itself into an appalling mess by its own fault. Instead of making their plants efficient, the leaders of the steel industry in those days went into an orgy of financial speculation, which left their businesses burdened with a great mass of watered capital and in much too unsound a state to be able to raise the new capital that was needed for technical reorganisation. Most of the big firms got into the hands of the banks and had to be put through a painful process of financial liquidation before they could even start on bringing themselves up to date. In 1924-5, despite heavy investment during the years of war, the output of the British steel industry was no higher than it had been in 1913; and though it rose in the later 'twenties, by 1930, even before the world slump had set in, it was down again below the output of 1913. STEEL P R O D U C T I O N (Great Britain), 1913 and 1924-1947 (Million Tons) 1924 8 2 1930 7 4 1931 1913 77 1925 1926 3 6* 1932 1927 9 1 1933 1928 8 5 1934 1929 9 6 1935 * Coal stoppage.

1936 73 5 2† 1937 5 3† 1938 70 1939

88 99 †

11 8 13 0 10 4 13 2

1940. 1941... 1942 1943 1944 1945 World Depression.

130 1946 123 1947 129 130 12 1 118

127 13 1

IMPORTS O F STEEL I N T O GREAT B R I T A I N (Thousand Tons) Blooms, Billets and Slabs Bars, Rods, Angles, Shapes and Sections Plates and Sheets .. Other Goods TOTAL

1913 1929 1930 1931 1932 1933 1934 1935 1936 1937 514

573

531

360

230

331

262

453

437

574 169 747

937 1,017 1,137 197 162 150 962 854 719

646 76 358

314 37 269

491

418 48 296

364 43 311

468 51 362

566

2,004 2,669 2,599 2,537 1,440

46 335

850 1,203 1,024 1,171 1,318

WHY NATIONALISATION ?

25

No one can put upon it the main blame for the greatly reduced output of the next two years, during which it was meeting die impact of the world slump; but it has to be borne in mind that die slump served to get the steelmakers the tariff on imports for which they had been clamouring for a long while before. In 1928-9 Great Britain had been importing well over two and a half million tons of steel a year; in the 1930's total imports were less than half that amount. Indeed, from 1932 onwards no foreign steel at all was coming in except what the steel firms themselves wished to have imported. First the tariff and then, even more effectively, the cartel agreement shut out all other imports; and the Iron and Steel Federation itself took over control of the distribution of such foreign steel as it needed to supplement the British production. The British steelmakers, with every encouragement from the Governments of the 1930's, organised themselves into a close monopoly, and were able to regulate steel prices pretty much as they pleased, with the friendly assent of the official Import Duties Advisory Committee, which was supposed to watch over their proceedings in the public interest. Thus protected, they were able to maintain steel prices at a high level even during the worst period of the world depression and to keep them high when the depression was over. Profits recovered ; share values picked up finely after the tribulations of the 'twenties; the tottering industry was put back firmly on its feet. Steel Prices A glance at the accompanying Table of prices will be enough to show what occured. The steel industry, except where it had to follow the American market, as in the case of tinplates, kept its price-levels unaltered through the years of slump, when most other prices were tumbling fast. After the slump, though wholesale prices in general remained a long way below the level of 1929, and even mineral prices as a group rose above that level only in the boom year, 1937, the steel industry—including the tinplate section—charged prices at first up to, and then well above, the 1929 prices. It was able to do this, at some sacrifice of exports, because of the high protection which it enjoyed in the home market and because its agreement with the continental producers, through the Cartel, gave it a practical monopoly in the Dominions and Colonies. Of course, these advantages did not extend to the users of steel, and the high prices were prejudicial to a wide range of British exports. The crude steel producers, however, and also most of the finishers were " sitting pretty," and felt under no obligation to pass on to the consumers the benefits of the considerable improvements made

26

WHY NATIONALISE STEEL ?

during the 'thirties in the technique of production. They were determined both to recoup themselves thoroughly for the losses of the previous decade, which had been largely their own fault (because of the speculative excesses of the post-war years,) and to build up a strong profit-making structure for the future; and it did not worry them if this were done at the expense of the wide range of steel-users or of other British export trades dependent on steel. BRITISH STEEL PRICES AFTER 1929 Compared with general movement of Wholesale Prices (Figures from " The Economist " )

Steel Rails,* Index, Middlesbro, 1929 = 100 per ton £

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939

8.5 85 85 8.5 85 85 85 8.5 10 12 10 12 10 15

100 100 100 100 100 100 100 100 119 119 119

* End of Year.

Tinplates,* S. Wales, per box s. d.

18 15 14 16 16 18 18 19 23 21 21

9 6 6 0 7½ 2 9 9 0 6 6

Index, 1929 = 100

General Index† of Wholesale Prices 1929=100

Index† of Mineral Prices 1929=100

100 83 77 85 89 97 100 105 123 115 115

100 84 70 68 68 71 74 79 89 78 80

100 87 77 76 81 81 84 89 108 97 100

† Average of Year.

I am not suggesting that all this was simply a " ramp," connived at by the Government for the purpose of restoring the steelmakers' profits. The Government and the I.D.A.C. were no doubt sincerely convinced that it was necessary to put the industry back into a prosperous condition in order to enable it to raise capital for the technical modernisation which it badly needed and to ensure that the country would be well equipped, should need arise, to supply the requirements of war. As believers in private enterprise they naturally saw the restoration of a high level of profits as the only way of bringing about the desired results. And, up to a point, it was brought about. During the logo's the steel industry, entrenched behind its monopoly and sure of good profits, did undertake quite considerable measures of technical reorganisation. Its output rose from the seven million tons of 1933 and the nine millions of 1934 to thirteen million tons in the boom year, 1937. It then fell back

WHY NATIONALISATION ?

27

seriously, to only10½million tons in 1938; but war preparation and the actual war brought it up again to thirteen million tons in 1939—that is, rather more than it was producing in 19471. The Fall in Exports The pre-war expansion of output, however, was not accompanied by a corresponding growth of exports. In no major branch of the steel industry did exports in the 'thirties—even in 1937—nearly recover to the level of 1929, which was itself very near the level of 1913. In 1937 total steel exports were only 2,704,000 tons, as against 3,788,000 in 1929 and 3,772,000 in 1913. The steel industry in the 1930's concentrated on the home market, with its expanding output of motor-cars, electrical goods, minor metal ware, and structural steel, and, sheltered behind its tariff and its agreement with the German and other continental producers, made little attempt to push exports outside the empire market, which was reserved to it under the cartel agreement. Even in 1937, British exports of railway material, of girders and beams and joists were well under half those of 1929. Exports of bars and sections were only 72 per cent., of plates and sheets 60 per cent., and of tubes 83 per cent., of the exports of 1929. Total steel exports had fallen by more than one-third in quantity. Even in value, despite high prices, the total had fallen by 27 per cent. BRITISH STEEL Thousand Tons of Bars, Rods, Angles, Shapes and Sections Girders, Beams, Joists and Pillars

Plates and Sheets

Tubes, Pipes and Fittings

Railway Material Wire and Wire Manufactures Nails and Tacks Other Goods TOTAL

1913

1929

251

330

EXPORTS

1930 1931 1932 1933 1934 1935 1936 1937 231

122 88 54 1,533 1,808 1,281

123

106

130

195

234

206

25 16 894 1,019

14 972

25 923

27 996

27 34 918 1,076

237

400 701

454 441

347 344

204 184

218 88

273 92

339 165

325 162

301 209

376 208

116 55

130 56 482

86 45 409

57 27 240

60 25 212

67 30 213

74 34 276

87 38 286

91 36 304

106 46 322

594

3,772 3,788 2,797 1,754 1,743 1,792 2,031 2,156 2,092 2,407

In the early months of 1948 production rose to a much higher level—to an annual rate of 15 million tons in the first quarter of 1948, but this high output was achieved only by a considerable depletion of stocks of both scrap and pig iron, and it is not easy to believe that it can be sustained. Stocks of scrap fell by more than 50 per cent between February 1947 and February 1948, and stocks of pig iron were reduced over the same period from 534,000 to 352,000 tons.

28

WHY NATIONALISE STEEL ?

This loss of exports was, and is, an exceedingly serious matter. The good health of the British economic system depends very greatly on the export of capital goods. The world output of steel, after being reduced by more than half in the world depression, rose from about 120 million tons in 1929 to about 135 millions in 1937, or, leaving out the United States, where the production of 1929 was not recovered until 1940, and also leaving out Great Britain, from under 54 million tons in 1929 to nearly 71 millions in 1937. The British steelmakers lost ground heavily in face of an expanding world demand. They were not, save in a few special lines, trying to expand exports: they were endeavouring to keep their productive capacity down to what they could hope to employ in production for a restricted market—restricted both by monopoly pricing and by agreement with their partners in the Cartel. It may well have been true that such a policy was best in the interests of profit-making and of secure yields. It assuredly was not best from the standpoint of British industrial prosperity as a whole, or of the British balance of payments, which was already unfavourable long before 1939. Nor was the policy good even from the standpoint of national security. It was doubtless necessary, if the steel industry was to continue to be run for private profit, to get it out of the mess into which it had fallen, financially as well as technically, during the 1920s. In during this, however, the Government, the Import Duties Advisory Committee, and the Iron and Steel Federation all adopted a policy which led, I agree, to some increase in average technical efficiency as well as to higher profits, but did so in such a way as to limit expansion and to provide a small total capacity in relation to the real needs of either war or peace. Why the Steel Industry Tends to Restrictive Monopoly Why was this so ? The industry, as we have seen, went in for a policy of high prices, which necessarily restricted demand. But there was more to it than that. The steel industry, it has always to be borne in mind, is one of the most highly capitalised branches of production. Its plants have to be large—larger and larger with every advance in technique—and their construction and maintenance costs, even apart from obsolescence, are exceedingly high. It takes a very big capital investment to set a single operative to work, and—what is the same thing put differently—the labour force is small in relation to the capital involved. Wages are thus a comparatively small part of the costs of production— a situation just the reverse of that which exists in the coal industry, where wages are the major part of costs. Overheads form a high proportion of total costs ; and as machines and buildings, unlike workers,

WHY NATIONALISATION

29

cannot be discharged when times are bad, the steel industry has, from the standpoint of profit-making, a very strong inducement to keep its capital costs down by avoiding the construction of any plant which it cannot feel fairly sure of being able to put to full and continuous use. That is why there was so much talk between the wars of the need to eliminate "redundant capacity" ; and that is why the steel firms, when they were given their head and assured of a protected home market, preferred a programme of limited output for that assured market to any launching out on risky ventures either abroad or at home. If they had tried to compete in world markets instead of entering into a restrictive international agreement through the Cartel, they would have had to take the risks of a fluctuating demand in a number of keenly competitive markets, and would have had to face the possibility of irregular employment for their plants. Even at home, if they had reduced their prices as their costs fell, in the hope of attracting a larger demand, they would very likely have made less profit than they were able to make by keeping prices high and sales relatively small. These conditions are inherent in the technical economy of the steel industry; and they constitute the principal reasons why it ought to be nationalised. It is a key industry: its pricing policies affect the fortunes of many other industries, including those on which the long-run success of Britain as an exporter chiefly depends. It has a naturally strong tendency towards monopoly: the firms are large and few, and because of the high costs of plant construction the entry of new competitors is extremely difficult, or even, in many branches, impossible without the assent of the firms already in the field. It is an industry in which, because of the technical conditions, it pays the profit-seeking firms best to keep total productive capacity down as near as possible to the minimum level of expected demand, and to maintain high prices rather than pass on the benefit of technical economies to the consumers. Finally, because of its few firms and its tendency to monopolistic organisation it can easily enter into restrictive international agreements with the steel producers of other countries, and thus reproduce the conditions of scarcity and high prices over a wider field. Steel and Armaments. These inherent tendencies, taken together, make up an exceedingly strong case for public ownership. They constitute a case which is thoroughly cogent even apart from the fact that steel, with its related alloys, is the very foundation on which rests in every great country the making of armaments. Many people—and I am one of them—hold that there are overwhelmingly strong social reasons for removing the entire

30

WHY NATIONALISE STEEL ?

business of armament-making out of the hands of profit-making enterprise, and transferring it to public operation. It has often been pointed out that there is sheer indecency m making profit out of the instruments of death, and more than indecency in hawking them round the world and in maintaining "lobbies" to push their sales in Parliaments and Chancelleries, or in the courts of kings and chieftains, and sheer crime in making agreements with firms to render secret processes, patents, and scarce supplies available to potential enemies up to the very outbreak of war—as happened in British and American dealings with Nazi Germany. Even if there were no economic case for nationalising the steel industry, the moral case would be very strong; but it happens that in this instance morals and economics run together, and preach the same doctrine. The Fears of Excess Capacity Of course, the unwillingness of the steel firms to saddle themselves with potentially "redundant capacity," that would eat its head off in interest charges or in loss of profits if plans went wrong, was greatly accentuated in the 1930s by the fear that the great slump would recur, and that Great Britain would not escape its effects. This fear operated most of all to prevent any taking of risks in export markets, which were felt to be more precarious than the home market and as certain to be greatly contracted in a slump. But it acted also against taking risks even in the home market; for the policies of pre-war Governments were very far from offering the assurance that anything would be done to maintain full employment at home. The promises made first by the ChurchillLabour Coalition and later by the present Government to do all that can be done to keep employment high and steady may have done something to lessen these fears, as far as the home market is concerned; but they can, of course, do little to affect fears about export markets unless they can be expanded into worldwide undertakings, with the effective sanction of all the leading Governments behind them—and of this, despite the high-sounding clauses recently written into the World Trade Charter, there is all too little sign. Steel and the Balance of Payments Between the wars, the decline of iron and steel exports was sufficiently bad, but did not involve sheer calamity. The total deficit in the British balance of current payments was not big enough to lead

PRINCIPAL BRITISH EXPORTS O F I R O N A N D STEEL, 1938 & 1947 Quantities (Thousand Tons)

Pig Iron Ferro-alloys Ingots, Blooms and Billets Iron Bars Steel Bars and Rods Angles Shapes and Sections Castings and Forgings, Rough Girders, Joists and Beams Hoops and Strips Plates and Sheets, Plain Galvanised Sheets Tinned Plates, Sheets, etc. Tubes, Pipes and Fittings—Cast

„

„

„

—Wrought

Railway Material Wire Cables and Ropes Wire Netting Nails, Screws, Bolts and Rivets Anchors, Grapnels and Chains Fencing Springs Barrels, Drums and Churns Trunks, Safes, etc. Gas Containers Bedsteads and Cabinets Door and Window Frames Stoves, Grates and Cisterns

Hollow-ware

Other Iron and Steel TOTAL

Values (£ Thousand) 1938

1947

42.5 10.8 3.7 5.7 326.8 90.6 5.2 25.5 40.8 216.1 66.3 157.6 95.8 253.9 161.1 45.8 27.0 24.3 43.0 17.7 6.7 5.9 11.9 2.9 3.2 11.8 9.0 7.9 64.7 233.1

565.0 546.4 151.6 62.1 4,929.9 819.7 68.9 407.0 693.3 3,374.8 2,742.8 8,130.5 1,076.8 5,277.7 2,126.3 1,402.8 837.0 472.6 1,162.4 765.9 123.2 211.9 55.8 136.5 78.8 347.7 338.0 442.5 737.9 5,695.9

635.7 1,187.5 98.2 181.4 11,292.3 2,018.1 376.3 594.7 1,630.0 6,637.3 2,116.9 7,614.9 2,393.6 11,954.0 4,055.2 2,334.4 2,598.7 1,614.0 3,448.6 1,996.1 172.2 463.3 869.1 515.3 367.4 1,835.8 1,046.5 1,056.6 4,503.5 12,495.6

1,877.1

41,692.0

84,298.1

1938

1947

93.9 6.8 9.7 3.2 231.0 66.9 1.6 33.5 37.4 209.0 146.9 329.4 91.9 220.0 158.2 55.2 16.4 13.1 32.4 12.6 5.1 3.9 2.4 1.4 1.2 4.8 5.4 9.8 10.6 204.0 1,915.9

O T H E R BRITISH EXPORTS LARGELY D E P E N D E N T O N STEEL Values (£ Thousand)

Cutlery, Hardware and Implements Electrical Goods and Apparatus Machinery Aircraft and Engines Rail Vehicles Motor Cars and Accessories Motor Cycles and Accessories Cycles and Accessories Ships Arms and Munitions

1938

1947

9,028 13,611 57,868 5,408 7,529 15,051 1,087 3,087 8,491 6,269

35,299 49,425 180,545 24,818 18,173 74,967 5,037 13,480 18,976 12,045

32

WHY NATIONALISE STEEL ?

to crisis: it could be met by selling off a quite small proportion of British foreign investments, or, more usually, by not reinvesting abroad capital repayments from overseas. Nowadays, the situation is utterly different. Exports have to be increased greatly in order to provide the British people with the sheer means of living, as well as with the raw materials needed to keep them at work. Moreover, it is clear that a high proportion of British exports must consist of capital goods, produced either by the steel industry or by industries which depend directly upon it. Steel and its derivatives must be produced for largescale export at competitive prices: and the competition is bound to become keen as the United States presses further into the world market, as German industry is allowed to be rebuilt, and as other steel-producing countries recover their efficiency. The steel is needed for world revival and development—there is no doubt about that—but it will have to be produced and sold at keenly competitive prices, and Great Britain's future standard of living depends on this being done. If, as has been officially estimated, total British exports of all kinds of goods will have to be increased to at least 75 per cent above the pre-war amount, exports of steel and of goods made with steel will have to be increased a great deal more. A privately owned steel industry, working for maximum profit, can never be looked to to undertake this colossal task. The very attempt will necessarily run counter at many points to the quest for maximum profit, and will involve risks which will repel the private investor unless he is given a firm government guarantee of a good return on his capital. But to guarantee such a return would destroy the very incentives on which the case for private enterprise depends: it would be entirely inconsistent with the maintenance of efficient production. Nor would it be at all hopeful for the State to rely on control without ownership as an instrument for compelling the steel firms to follow an expansionist policy: they would, for thoroughly good reasons, be continually kicking against such coercion, which would run directly counter to their profitmaking interests; and in such a situation control without ownership would be inevitably a blunt and ineffective weapon. It would show its defects even more plainly than it does to-day, when they are partly offset by the steel firms' desire to appear as "good boys," obediently attentive to national interests, because they hope, by behaving well for the next year or two, to stave off the threat of nationalisation and get back their freedom to do what suits them best from the standpoint of maximum profit. They are far wilier than the colliery owners, who did not even try to appear oncoming or efficient; and there is evidence that quite a few people are being taken in by their apparent zeal in the public interest.

WHY NATIONALISATION ?

33

Such a situation cannot last. It is against the very nature of private monopolists not to behave in such a way as to extract the highest returns in their own interests; and it is against the very nature of control without ownership to be effective when the divergences between public and private interest are very large and appear, not at one point, but at literally hundreds, in connection with almost every policy decision that has to be made. There is only one way of securing that the steel industry shall steadily serve the national interest both in its export policy and in its attitude to the home market. That way is to convert it into a public service, and to eliminate the profit motive altogether from its key sections, on which the rest depend. The Problems of Centralisation Of course, this solution is not without difficulties of its own. Steel is an immense, very complicated industry, with many branches and many problems; and there is manifest danger of top-heaviness and over-centralisation in placing it all, or even most of it, under a single operating authority. It is far more complex than coal or electricity, and fully as complicated as inland transport. Nationalisation will not work efficiently unless it can be combined with a generous measure of decentralisation. It has, however, to be borne in mind that in the steel industry policy control is already highly centralised, under private ownership, and was so before the war brought in the Ministry of Supply as a central controlling agency on behalf of the nation. The Iron and Steel Federation took over in the 'thirties all the separate "product associations" which existed among the firms which turned out the same type of product, as well as the formulation of policy in respect of the making and pricing of crude steel. The range and complexity of a nationalised steel service will be less than those of the Federation, because it will be possible to leave certain finishing sections of the industry wholly or mainly outside its scope. This point has been discussed in the preceding section and need not be gone over again. It is pertinent in reply to those who suggest that the steel industry is too complicated to be unified under a single authority, even for its main branches. The answer is that it has already been so unified, under private enterprise and in pursuit of private profit. The unification, up to a point, is unavoidable : it arises directly out of the conditions under which the industry works. What is necessary is to reconcile this monopolistic tendency with the public interest, by making it serve the public instead of a body of private shareholders and directors who are bound by the inherent conditions of production to put it to anti-social use.

34

WHY NATIONALISE STEEL ?

V THE METHOD AND THE PROBLEMS If the arguments so far put forward are convincing, and the State ought to convert the steel industry, within the limits suggested, into a public service, how shall the job be tackled ? How can it be done with the least possible undesirable disturbance, and so on to avoid topheaviness while ensuring that the national interest comes first? The Method of Acquisition About the broad method of nationalisation there can be little doubt. The best course is to take over the existing firms just as they are, and to keep them running in every case as they are running now until they can be tackled, one by one or group by group, and the right adaptations and improvements introduced. When I say "as they are" I mean, of course, minus their shareholders and present boards of directors though many of the directors may reappear as public servants, where they possess the requisite competence. The existing firms should be acquired just as they stand, their working capital and reserves and their holdings in subsidiary or other business as well as their plant and stockin-trade. The shareholders should be compensated, in securities of the new public Steel Board, or Corporation, or whatever it is to be called. They should receive fair market value—neither more nor less—based on stock market valuations of their holdings and on the current price-level of government bonds. All this technique of fair compensation has been fully worked out already and applied to mines and railways and electricity undertakings ; and there is every reason in equity for using the same method in dealing with steel. All that is simple, and the application to steel presents no special problems1. Thus, on an "appointed day," the State will become the owner of all iron mines and iron and steel works that fall within the scope of the nationalisation plan and also of certain holdings, large or small, in concerns wholly or partly owned by the acquired firms. Where 1 An alternative would be to take over the entire equity capital only, leaving the non-voting capital in private hands This would involve difficulties in amalgamating businesses subsequently, especially when it was a question of transferring only a part of a business to a new combined unit. I therefore prefer the complete requisition of the firms affected, but the difference is not really fundamental.

THE METHOD AND THE PROBLEMS

35

the steel firms have shareholdings right outside the steel industry it will be open to the State, or to the authority set up to act on its behalf, either to sell off such holdings in the open market (at once or gradually) or to keep them where it sees any good purpose to be served. It may well wish to keep them in some cases—for example, holdings in armament firms outside the steel industry, or in non-ferrous metal manufacture, or perhaps in key sections of engineering or shipbuilding in which the public has a special interest. But all such decisions will clearly have to be taken on the merits of each particular case, and cannot fruitfully be discussed here. A slightly different situation will arise in respect of shares held by the nationalised firms in steel-finishing firms which fall outside the general scope of the nationalisation plan; but here again each case will have to be considered on its merits, the difference being that in most the branches of production in question will also have been carried on to some extent directly by the nationalised firms, in conjunction with their main business : so that there will be a stronger presumption in favour of retaining their subsidiaries or firms with which they have a close interlocking interest. Re-grouping and Planning The main firms—that is, the firms mainly engaged in crude steelmaking or in the processes which are commonly carried on in conjunction with it, and also the firms engaged in ore-mining or quarrying or in blast-furnace production of iron for steelmaking—will be taken over, then, as complete units, and will be told to continue production and to carry on with the plans of reorganisation already approved until further notice under instructions from the new authority set up by the State. As far as these firms are concerned, the new authority will take over the functions of the Iron and Steel Federation and its subordinate associations, and also presumably the powers now vested in the "Control" at the Ministry of Supply. There will be no interruption of production : only a change in the constitution of the body from which instructions about policy proceed. In the short run, the separate businesses which are taken over will retain their separate identities— not merely the individual plants, but the complexes of plants hitherto united under a common company ownership. Thereafter, it will of course be possible to undertake such re-grouping as may be necessary or convenient, especially between neighbouring works engaged in complementary processes; but this will have to be done gradually, in each case after careful enquiry into the economies of the proposal and after careful planning of the change-over. Some works will have to be re-built or expanded: some may have to be closed. In many cases

36

WHY NATIONALISE STEEL ?

the range of products and processes will need to be modified, in order to secure greater specialisation and further scope for mass-production. But, especially in view of the shortage of man-power and other resources for extensive immediate capital projects, even highly desirable changes of this sort are bound to be spread over a considerable time. There can be no very great speedy change in the steel industry's technical structure, though the aim will be to advance as fast as is deemed practicable along this line. The need for increased over-all capacity is so pressing that, for some time to come, it will be necessary to keep relatively inefficient plants at work, subsidising their output out of the higher yield of those which are more efficient. The aim of course will be to end this situation as soon as possible; but it cannot be ended at once. What will no longer be necessary is the fixing of prices at a level high enough to yield a profit even to the most inefficient plant that it is necessary to maintain in use. Here is another point at which, from the consumers' standpoint, the advantages of public ownership can be plainly seen. The Shortage of Capacity The steel industry to-day has not nearly enough productive capacity, even including the less efficient plants, to meet the combined needs of the home and export markets. This is because the industry was conducted before the war on restrictive lines meant to keep capacity down to a low level, and also because this same policy was carried on into the war years. The leaders of the steel industry during the war steadily resisted proposals that they should increase their capacity, in order to meet war demands, beyond the level which they thought would give them the best assurance of maximum profitability after the war. They preferred, especially while the United States was still a neutral, to import American steel to fill up the gap in British supplies; and in formulating their reconstruction policies they stood out against any plans that they felt might threaten " redundancy " in relation to their monopolistic, high-price policies. There was much argument about the target that ought to be set for Great Britain's steel capacity after the war, between a lowest limit of about 15 million tons a year and a highest of about 17 millions. In the event, the industry was permitted to plan for the lowest limit, or for something very near it, after minimum allowance for the writing off of plant that was clearly obsolete. It is bound now to take a long time to rectify this gross mistake—which, of course, from the profit-making standpoint was not a mistake at all, but sound, if uncourageous, economic policy. The new public service will be run

THE METHOD AND THE PROBLEMS

37

on the basis of an essentially different attitude; but the shortage of resources for huge capital projects will inevitably slow down the development of capacity in accordance with the changed objective. The Steel Firms under Public Ownership The new authority, then, will take over an inadequately equipped —though not, in some of its sections, a technically inefficient—industry, and will have, for some time, largely to make do with what already exists. This will make it the more desirable to maintain, for the time being, much of the existing business structure. I think, in the first instance, the best course will be to appoint new public boards of directors for all the major businesses that are acquired, and to include among them such of the present directors as are technically or administratively worth their salt, and prepared to play the game. In the case of the coal industry it was practicable to proceed fairly rapidly with new local and regional groupings of pits, because they were all engaged in the common business of getting coal. Steel manufacture is a much more heterogeneous affair, which cannot be simply sorted into areas or regions under common administrative control. Sorting out there will have to be, but it will be a complicated process, and in a good many cases the local basis of unification will not be the best. Regionalisation, over large regions such as South Wales or the North-East Coast, is another matter, and fits in, to a large extent, with the traditions of the steel industry. Local unification over small areas does not, because it cuts too much across the lines of product. A National Steel Board The likeliest course, then, seems to be that, at the outset, the nationalisation Act will set up some sort of National Board or Commission, more closely analogous to the Transport Commission, with its subordinate nation-wide executives, than to the National Coal Board. Under this national authority there will be, at first, the new boards of directors of the big firms that will have been taken over and also the new boards of a number of more specialised smaller firms. The new authority will presumably appoint these boards, to act under its instructions, and under the boards will be the separate managements of the individual plants belonging to the particular firms. From this beginning the national authority will proceed gradually to a sorting out, from which will emerge a mainly regional pattern of directing boards, endowed with a considerable, and increasing, amount of regional autonomy. But alongside this regional pattern, centred in the production of pig iron and of

38

WHY NATIONALISE STEEL ?

crude steel, there will have to be a distinct pattern of administration dealing with the more specialised products; and it will be one of the chief tasks of the new national authority to devise the right system of relations between the regional and the specialised agencies. This will present difficult problems, because many of the works producing crude steel will be also making specialised products—semi-finished or finished. This, however is the same situation as exists in the Iron and Steel Federation and its interconnected "Product Associations" to-day : it is in no sense a problem peculiar to a nationalised industry. Labour Relations Other problems will arise in connection with labour relations. Labour, as in the coal mines, will demand its share in control and influence not only on the new national authority but also in the regions and in the affairs of the individual works ; and this will raise issues, apart from the relatively simple one of the form of collective bargaining, about the respective powers and spheres of regional or specialist administrative bodies and the "labour management" side of the nationalised industry. Such issues are giving much trouble and cause for thought in the coal industry just now; and they cannot be settled except empirically. The labour function and the function of general administrative organisation are interdependent variables. On the labour side, the problems are, however, less difficult than in the case of coal, both because the steel industry has a vastly better record of labour relations and because its methods of collective bargaining, within its general agreements, have usually been related closely to the partticular establishments. That its labour relations have been better is partly due to the fact that wages form a much smaller part of the total costs of production ; but it is due also to the smaller degree of isolation and to the greater diversity of crafts and skills and the closer interlocking with other forms of employment. The labour force of the steel industry is small in relation to the magnitude of its operations ; and there has been much less demand for "workers' control" than among the miners— who are, moreover, bound together by the close sense of community which the danger of their calling and the dependence of safety on good comradeship tend to create. Consultation and Control As a Guild Socialist, I believe that industry will not work really well until the responsibility for its efficient conduct is fairly shared with the workers by hand and brain, under conditions based on the

THE METHOD AND THE PROBLEMS

39

recognition of every worker as a responsible partner in a democratically organised public service. I do not, however, regard it as practicable to leap straight from capitalism to such a system; nor do I undervalue the importance of trained technical and administrative ability, or the part played by leadership. What has to be worked out experimentally is the best way of reconciling the potentially conflicting claims of industrial democracy and of technical and managerial control, under conditions which will compel managers and technicians alike to pay much more regard than in the past to the human factor, because they will no longer be able to make the same use of the power of the sack. This power will be lessened both by conditions of labour shortage, which make men much less afraid of losing their jobs, and still more by increased solidarity, vested in stronger trade union organisations and in the greater accessibility of nationalised enterprises to public and Parliamentary criticism. It is already coming to be understood that these conditions necessitate much fuller joint consultation at the works and workshop level as well as on a regional or national scale: the question is how far and how quickly the advance can be made from mere consultation to an actual delegation of control, or to a sharing of it, and also how far the trade unions are themselves to become responsible partners in nationalised industry, or had better remain outside in order to serve as free agents for the formulation of the workers' collective grievances and demands. This is not the place for any attempt to do more than barely raise these issues, which are in no way peculiar to the steel industry, although they will arise in it as in any other industry which may be transferred from private to public operation. The Board and the Minister I am assuming that, as in the case of other nationalised industries, the administration of steel will be entrusted to a national Board or Commission, appointed by the appropriate Minister and instructed to work under general directions issued by him for the purpose of ensuring compliance with the Government's economic policy. This pattern seems now to be pretty generally accepted, though there are still many critics of its working. One vexed question is whether the Minister shall have complete discretion in making the appointments, subject only to a general provision that he must choose persons of experience in the industry or service or in related industries or services, or in such specialist matters as transport or finance, or in labour matters, or whether there should be some element of representation, at any rate to the extent of making the Minister choose some of the commissioners from lists of nominees submitted to him by the trade unions, or the

40

WHY NATIONALISE STEEL ?

consumers, or other legitimately interested groups. In France, nationalisation has followed the latter model, and has been based on a sharing of authority among nominees of workers and technicians and consumers and representatives of the general public interest. In this country the other line has been taken, with the advantage of freer choice for the Minister, but with the disadvantage of a diminished feeling of participation and responsibility on the workers' part. On the whole I prefer this method, but only on condition that it is accompanied and followed up by a real attempt to delegate responsibility not only upon regional and local bodies subject to the national authority of the industry but also, in each establishment, on the workers and technicians themselves. Problems of Administration There is, however, a related question which forces itself speedily to the front in any organisation as soon as it settles down to business. This concerns the relative powers of the technical experts—the professional "engineers" who are experts in plant construction and design—and the administrators, who are experts in business organisation and are also nearer to the human, as distinct from the mechanical, aspects of efficiency. There are, indeed, three claims to be reconciled —those of engineering, of administration, and of human relations ; and any good set-up must rest on a balance between these three forces, subject in all cases to the overriding claims of the public interest as a whole and of the democratic ideal in its industrial application. The main task of the Minister in making his appointments to the national authority is that of achieving a right and harmonious balance in these respects ; and the main task of the national authority is to reproduce this balance throughout the entire structure, at the regional, the local, and the works level. What is needed is, of course, not simply a right numerical admixture, but as far as possible a choice of men who have the imagination to understand and to sympathise with claims that belong mainly to fields other than their own—humane technical engineers and administrators, labour experts who appreciate administrative and technical points of view, technicians who are at any rate not allergic to administrative arrangements, administrators who know something of technique. Such men cannot be easy to find in sufficient numbers ; and all too little has been done to train the various types of experts to appreciate one another's qualities. There will have to be much skilful shuffling to get the right men into the right places ; and it will be vitally important for the nationalised industry to tackle the problem of training, at all levels, from this point of view.

THE METHOD AND THE PROBLEMS

41

Research and Development A further problem to be faced—and one of particular importance in the case of steel—is that of research. Clearly a nationalised steel industry will need both to develop its own research organisation and to work in very closely with the metallurgical and allied departments of Universities and Technical Colleges and Institutes. It will need also to maintain very close relations with the research units connected with the steel-using industries and services, with the various bodies researching into fuels and their utilisation, and with the research sections of the branches of the steel industry itself that are left in private hands. It will have to collaborate closely with the National Physical Laboratory and with the Standards Institute; and it will need to work out the right arrangements for relating laboratory research to "development" research, as an intermediate stage between discovery and large-scale commercial application. In all these fields it will need to bear in mind both the danger of unduly commercialising scientific research and the point that research workers need a large amount of liberty if they are to give of their best. Not only "fundamental" scientific research, but also much applied research, needs independence if it is to be done well. A nationalised steel industry will be in an excellent position to allow such independence, and to afford to let its research agencies range freely, paying for work that leads to nothing in a commercial sense out of the rich yields of successful projects; but it will be necessary to plan deliberately for this independence, which will by no means always be pleasing to the technical and administrative personnel whose traditions and routines it will frequently upset. At the same time the opposite danger will have to be guarded against—I mean that of so isolating the researchers from the practitioners that research fails to make the required impact on everyday practice. The working technicians and managers must be kept in close touch with the research agencies; there must be continual coming and going between the laboratories and experimental stations and the works. Costs and Prices under Public Ownership These, I think, are the main practical problems which will arise immediately in connection with the transfer of the mam sections of the steel industry from private to public operation. I am assuming that, broadly speaking, the nationalised industry will run on such a footing as to be required to cover its costs, including research costs, out of its earnings, except when the Government instructs it, in the national interest, to do something that is plainly uneconomic—in which case the

42

WHY NATIONALISE STEEL ?

cost should clearly be met by the Exchequer and not by the industry out of higher prices charged to the consumers of steel. I am assuming that the industry will be given power, subject to the sanction of the responsible Minister and of the Treasury, to raise fresh capital for development by the issue of bonds, either with or without a government guarantee of principal or interest, or of both. I assume that any international agreements or arrangements into which it may wish to enter will be subject to government approval, and that it will not be allowed to participate in any restrictive system designed to hold up prices at home or abroad. I assume that the regulation of imports competitive with home products will remain in the hands of the Government, even if the new authority is used for some purposes as the Government's agent for the distribution of imported supplies. Export Policy This brings me to the question of exports. At present there exists an Export Corporation under the control of the Iron and Steel Federation. This will presumably be taken over, as far as it handles the products of the firms which will pass under public operation. The next point is whether the State should take over the entire export business, including that of the sections of the industry which are to be left in private hands. On this issue I have to some extent an open mind. I am inclined to say "Yes, where the bulk of a product will in future be produced in publicly owned establishments," but " N o , where the bulk will be produced privately and the share of the nationalised industry in it will be small or non-existent." It should not be difficult to find a reasonable solution of this problem : another possible way would be to leave the Export Corporation in existence as representing both the nationalised and the non-nationalised units.

VI THE CASE CONCLUDED When the steel industry passes under public ownership, an epoch will be at an end; for much more than an industry will be changing hands. It is not too much to say that the great age of Capitalism began with the discovery of cheap steel, or that the age of Economic Imperialism came swiftly in its wake. The earlier Capitalism of the industrial Revolution, built mainly on the production of cheap textile

THE CASE CONCLUDED

43

goods, was on the whole pacific in outlook. It wanted to sell its piecegoods and its clothing all over the world, and it felt no claim to interfere with the buyers or to disturb their social and political institutions further than was necessary to open the market to its wares. The Capitalism of the Age of Steel was a very different affair : it wanted not only markets but also sources of supply of scarce metals for its factories, and the very goods it set out to sell had to be marketed on essentially different terms. Trade was no longer just a matter of exchanging a length of cotton piece-goods for some native product: it involved selling very expensive things, such as railway plant and machinery, for which the inhabitants of the less wealthy countries could by no means afford to pay on the nail with their own products. In fact it involved investment by the capitalists of the wealthier countries in the less developed areas; and the investment could be made to pay only when it had been effective in opening up new regions to economic exploitation. New food producing areas were tapped, and sometimes occupied by white settlers, who either cultivated the land themselves or employed cheap native labour. New sources of minerals were developed, with native labour working in the mines at very low wages under white supervision. It was no accident that during the last quarter of the nineteenth century nearly all the African Continent was partitioned among the European Powers, while in Asia the British, Dutch and French Empires were continuously extended and Japan, imitating the Capitalism of the West, began to dream of an Empire spread over all Southern Asia up to India and to contend with Russia for the mastery of Northern Asia. Steel and Economic Imperialism All these developments rested largely upon steel, because steel underlay not only the building of railways and ships and factories equipped with steam and later with electrical power, but also the armed force on which rested the growing domination of the advanced countries over the less advanced. The world's steelmakers thus filled a double role: they played, in conjunction with the great heavy engineering concerns, the leading part in the worldwide process of capitalist exploitation, and in doing so they were themselves transformed from mere industrialists into merchants, financiers and politicians. They marketed their own products all over the world, directly or through subsidiaries; they became integrated into huge combines stretching back to their raw materials and forward to a vast variety of finished products; they linked up with bankers and company promoters and became much more financially than industrially minded; they set out to influence Governments to back and sometimes to guarantee their huge projects, and invoked the aid of their own Governments to protect,

44

WHY NATIONALISE STEEL ?

even by annexation, their investments in the less developed countries They had also, inevitably, an interest in persuading Governments and peoples of the need for more and more armaments ; and success in this field was much the easier because, the more arms one country bought, the more other countries felt they had to buy. The competitive race in armaments was wholly to the advantage of the steelmakers of the world, above all if the arms could be piled higher and higher without actually leading to worldwide war. Such war had its dangers for the steelmakers, as for everyone else—dangers of default, of revolution, or of causing the nations to bethink themselves of removing so dangerous an industry out of private hands. But this risk was not so great as to deter the steelmakers and their allies in the armament trade from doing all they could to push the sale of weapons in times of peace. The " S t e e l International" There was a paradox in the whole attitude of these people. On the one hand they worked in closely with their own Governments in each separate country, and became great powers behind the thrones. On the other, their economic interests and the conditions of their industries impelled them to link up internationally, both sharing and exchanging patents and secret processes across national frontiers and restricting competition m the world market by cartel arrangements and other agreements designed to keep prices and profits high. At the same time as they urged more and better weapons of war upon their own Governments they were selling the means of making similar weapons to the potential enemies against whom they were urging their Governments to re-arm. All this happened not because of any particular wickedness among the steel- and armament-makers (though some pretty wicked individuals were attracted into the arms trade as the most congenial to their minds), but because it was of the very nature of the steel industry and of the industries grouped round it that these policies should be pursued, wherever the motive of private profit was allowed to prevail. Monopoly paid handsome dividends : arms-pushing was a highly remunerative business: risks could be reduced by bribing or cajoling Ministers or politicians or kings or tribal chiefs to favour the interests of the great firms and their investing associates. Steel and the British People An industry which possesses these inherent tendencies wherever it is allowed to remain in private hands is much too dangerous to the world's peace, as well as much too well able to entrench itself in a monopolistic position against the public, to be let alone. There is

THE CASE CONCLUDED

45

admittedly no guarantee that nationalisation will cure the evils, for in the hands of a predatory, imperialistic Government it might even accentuate the war danger, and such Governments, putting " g u n s " before "butter," can also exploit the people. Nothing, however, can be more certain than that the British people and the British Government are no war-mongers and are sincerely set on keeping the peace. This is true, henceforward, not only of a Labour Government, but of any British Government one can imagine being returned to power by the popular vote. It is so for the conclusive reason that everyone in Great Britain who is not a lunatic knows that another great war would mean final and irretrievable disaster for the British people. We can, then, from this point of view safely entrust the steel industry to the State, with the assurance that the State will not run it deliberately as an instrument of aggressive war. That leaves us free to consider the purely economic aspect of the matter. I think I have shown not only that, but also why, the steel industry has an inherent tendency to organise itself into a monopoly and to follow a policy of high prices and deliberate exploitation of the consumers for the enhancement of its profits. There is, however, an additional reason which I have not so far explicitly mentioned, though it has been implied. The extreme expensiveness of the industry's capital equipment involves that it has at any time a huge capital sum locked up in plant of widely varying age and efficiency. This plant represents a high proportion of its total capital, on which it is seeking to earn a profit. Accordingly, the steel industry has a strong interest in not scrapping more plant than it must until it is physically worn out, even if it has become obsolete, because of technical progress, long before. Under conditions of competition, each firm would be forced to scrap plant that was below the efficiency of its competitors, at home or abroad, and it would pay progressive firms to put in the best possible equipment in order to get a lead over the rest. It pays, however, still better to abandon, or rigidly to limit, competition; for under monopoly the obsolescent plant can be kept in use, and prices can be maintained at a level high enough to make its use profitable. A monopolistic steel industry rum for profit has inevitably an interest in slowing down the pace of technical improvement in order to conserve for as long as possible the value of its existing capital assets. This drives it to seek both protection against foreign competition in its home market and agreements with its foreign competitors to limit competition in the world market as a whole. Steel Policy under Public Ownership Of course, even if the steel industry were nationalised, the high cost of scrapping existing equipment would still be a factor to be taken

46

WHY NATIONALISE STEEL ?

into account. But under public ownership the choice between scrapping and keeping in use would be taken in the national interest and not in that of a limited group of shareholders and financiers. As matters stand in Great Britain to-day, it is indispensable to raise the steel industry to the highest possible level of efficiency and to get rid of all restrictive practices, even at the cost of lower profits, because Great Britain both needs extensive capital re-equipment, which depends on steel, and must raise exports to the highest possible level in order to procure the means of life. The raising of exports, as we have seen, also depends on steel; for the types of British goods for which there is the best long-run chance of an expanding market are finished steel products and the engineering and other goods made largely out of them. Therefore, in the interests both of the export trade and of speeding up the re-equipment of British industries, the nationalisation of steel is an immediate and urgent necessity. The Problem of Quality and Location Under nationalisation, as indeed under any system of operation, it will be indispensable to go out for high quality, as well as for high quantity, in production. A good many of the familiar comparisons between the efficiency of the British, American, German, and other steel industries in terms of production per man-hour are misleading because they do not take account of the factor of quality. It takes much less labour, and much less fuel, to produce a ton of "basic Bessemer" steel, from iron of a given quality, than it does to produce a ton of "open-hearth" steel, acid or basic, — to say nothing of the finer steel-alloys or of the "high-speed" steels, which cost still more to produce. It is meaningless to average costs, or labour used, over the total production of each of a number of countries and then to compare the results. Such comparisons are valid only when they are made for products of comparable quality. If, however, it is vitally important to maintain the high quality of British steel where it is to be put to uses for which high quality is required, it is also important not to inflate prices by using high-quality steel where cheaper steel will give a satisfactory result. Great Britain used up to 1932, to import much of its low-grade steel in a crude state and finish it here, the home-produced steel going mainly into the uses where relatively high quality was required. Then the cheap Belgian and German steels were cut out, and the British steel industry set to work to adapt itself to a higher degree of self-sufficiency. This involved establishing a new balance between different types of steel production for home use, and re-planning the location of the industry in order to take the fullest practicable advantage of continuous pro-

THE CASE CONCLUDED

47

cesses based on the use of relatively low-grade domestic supplies of iron ore. Those were the days in which the great new works at Corby and at Ebbw Vale were designed, to the accompaniment of heated controversy inside the industry. The new Corby works of Stewarts and Lloyds, built directly on the Northamptonshire ore-fields, were undoubtedly a great advance; but the new strip mill of Richard Thomas and Company at Ebbw Vale was from the first a much more doubtful economic venture, because it involved transport of the ore by land over a long distance from the Northamptonshire workings, and because the high cost of transport might more than offset the economy of continuous production It is fortunately not necessary to go back upon the tangled story of the Ebbw Vale works and its difficulties, or upon the factors which led to the abandonment of the project for a large new steelworks at Jarrow. The information which alone could make it possible to tell these stories without distortion is not available; and I do not profess to be in a position to disentangle the truth from the confused accounts that have been made public. All I know is that the published record of the industry in the 1930's gives a clear impression of the jostling of rival interests and of the fears of those already in possession of new developments that might threaten their command of the market, rather than of any coherent attempt to replan the industry on a basis of high production at the lowest level of costs consistent with good working conditions for those whom it employs. The 1930's showed that the industry, left under private ownership, could not be trusted, even m conjunction with the Import Duties Advisory Committee, to work out adequate development plans or to prefer expansion to scarcity where expansion involved treading on the corns of vested interest. The monopolists were not in a position to prevent the introduction of new methods—indeed they had to do something to apply them themselves—but in general they were able to get control of the new processes and to make sure that competition did not so react on prices as to render the less up-to-date works unprofitable. The Coming Battle Steel, then, has to be nationalised. But we must expect a stiff fight before nationalisation becomes an accomplished fact. So far, the Government's socialising measures have had a remarkably easy passage. As we have seen, in the case of coal-mining the opposition was merely perfunctory, because everyone knew that public ownership was the only possible solution. Electricity nationalisation was no more than the completion of a process already well begun between the wars. The gas industry did not seem to mind at all: indeed, some of its leading

48

WHY NATIONALISE STEEL ?

units played an active part in the transfer. The railways put up a bit of a fight, but got no public support, and not even much from the Opposition in Parliament. Some of the road transport operators fought harder; but there was no real parliamentary battle even there. Steel, however, will be defended by the believers in private Capitalism, as well as by the steel interests themselves, to the bitter end; and every possible pressure will be put on the Government to delay action long enough to prevent nationalisation from going through before the next General Election. The Tories will fight hard in the Commons: the Lords will pretty certainly throw out the Bill, and will continue to do so till it can be passed over their heads. So everyone who believes that the steel industry ought to be made a public service must stand ready to play his part in the struggle that lies ahead. We must expect the newspapers to be filled with praise of the industry's achievements, and we must expect the industry itself to behave as well as it possibly can for the time being in the hope of convincing the public that there is no case for taking it over. We must expect the output figures to be as good as they can be in face of coal shortage and the inadequacy of the industry's capacity to meet the full needs. In fact, we must not expect to be furnished with any fresh arguments for nationalisation arising out of the industry's current behaviour. The purpose of this booklet is to prevent the public from being misled by this evidence of death-bed repentance. If the industry can avert nationalisation now, it will not be long before it is back at its old games at the nation's expense.

Printed in England by The Cornwall Press Ltd, Paris Garden, S E 1

EXPORTS

DEPEND

ON

STEEL

ThefiguresshowthevaluesofBritish

DIRECT EXPORTS OF IRON & STEEL

£84

million

Plates & Sheets including tinplates

16

Ingots & Semis

14 ½

Tubes & Pipes

14

Wire, Nails, Bolts & Rivets

8½

Hollow Ware

4½

Railway Materials

4

Pig Iron & Ferro Alloys

2 20½

Other Iron & Steel

£ 84 m.

MACHINERY EXPORTS

£180

million

Textile Machinery

24½

Electrical Machinery

21

Machine Tools

15

Boiler Plant

11

Agricultural Machinery

9

Internal Combustion Engines

8½

Cranes

6

Pumps

5

Other Machinery

80 £ 180 m.

OTHER EXPORTS DEPENDENT ON STEEL

£252

million

Motor Vehicles & Accessories

80

Electrical Goods

49½

Cutlery, Hardware & Implements

35

Aircraft & Engines

25

Ships

19

Rail Vehicles

18

Cycles & Accessories

13½

Arms & Monitions

12 £ 252 m.

Fabian Society

BRITISH LABOUR MOVEMENT —Retrospect and Prospect

G. D. H. COLE

Ralph Fox Memorial Lecture, April 1951 Fabian Special No. 8 Ninepence

Ralph Fox Memorial Committee

BRITISH LABOUR MOVEMENT —Retrospect and Prospect G. D. H. COLE Ralph Fox Memorial Lecture, April 1951 Fabian Special No. 8

P R E F A T O R Y NOTE THIS PAMPHLET is a reprint of a lecture which I gave at Halifax in April, 1951, at the request of the Ralph Fox Memorial Committee It was the first of a series of annual lectures, to be given in memory of a citizen of Halifax, well known to the Socialist movement and as a writer, who died fighting for his faith in the Spamsh Civil War Ralph Fox was born in Halifax on March 30, 1900 From his twentieth year he was actively associated with the Labour Movement and the Communist Party He was best known as an historian for his biography of Gengis Khan, as a literary critic for his association with Left Review, the Daily Review and New Writing, to which papers he contributed articles, political journalism and short stories On the outbreak of the Spanish Civil War he volunteered for the International Brigade and served as political officer to the British Battalion He was killed in action before Cordoba on June 2, 1937 It seemed to me fitting to honour his memory by surveying, over the period covered by my own knowledge, the changing phases of Labour development, and trying to see what tendencies are at work in the movement to-day After the lecture, it was suggested that a printed version might serve as a basis for discussion groups in some of the considerable number of Labour Party, Trade Union, and other organisations represented in the audience I readily agreed, and the Fabian Society is publishing my lecture with this purpose, as well as its own members, in view Those interested or needing copies of this pamphlet can apply either to the Fabian Society or to the Ralph Fox Memorial Committee's Secretary, Mrs F Edwards, 20, West View Drive, Halifax, Yorkshire

May, 1951

G D H C

G D H Cole is a member of the Fabian Society Executive Committee and was until recently its Chairman He is Chichele Professor of Social and Political Theory at Oxford

NOTE—This pamphlet, like all publications of the Fabian Society, represents not the collective view of the Society but only the view of the individual who prepared it The responsibility of the Society is limited to approving the publications which it issues as worthy of consideration within the Labour Movement. June, 1951.

THE BRITISH LABOUR MOVEMENT — R E T R O S P E C T A N D PROSPECT Ralph Fox Memorial Lecture. Halifax, April 1951 By Professor G. D. H. COLE MY OWN recollections of the British Labour movement go back over forty-five years I became a Socialist as a schoolboy a year or so before the General Election of 1906, which first put the Labour Party firmly on the parliamentary map Till then it was only the Labour Representation Committee, with no more M P s than could be counted on the fingers of one hand In 1906 it rose suddenly to a party of thirty members—still a mere handful besides the 400 Liberals and not much more than a third as many as the Irish Nationalists Nevertheless, Labour became a party, and from 1906 there was no longer any doubt that it was destined to become a major force in British parliamentary affairs—though it was then impossible to foresee the speedy break-up of the Liberal Party, which seemed at the very height of its powers, or the great accession to the strength of the Labour movement during the First World War Why I became a Socialist My conversion to Socialism had very little to do with parliamentary politics, which were at the time of it mainly occupied with the struggle over Free Trade and Tariff Reform, with the issues of Irish Home Rule and Women's Suffrage ranking next in current estimation, and that of Trade Union rights, challenged by the Taff Vale Judgment, a poor fourth, outside a few industrial areas I was converted, quite simply, by reading William Morris's News from Nowhere, which made me feel, suddenly and irrevocably, that there was nothing except a Socialist that it was possible for me to be. I did not at once join any Socialist body I was only sixteen, and had the best part of three years more school in front of me before going up to Oxford, which was already my planned destination 1 do not remember even taking a great deal of interest in

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the General Election of 1906 until it was over—when I shared in the common excitement and wonder about what would happen next My Socialism, at that stage, had very little to do with parliamentary politics, my instinctive aversion from which has never left me—and never will Converted by reading Morris's utopia, I became an Utopian Socialist, and I suppose that is what I have been all my life since I became a Socialist, as many others did in those days, on grounds of morals and decency and aesthetic sensibility I wanted to do the decent thing by my fellow-men. I could not see why every human being should not have as good a chance in life as I, and I hated the ugliness both of poverty and of the money-grubbing way of life that I saw around me as its complement I still think these are three excellent grounds for being a Socialist indeed, I know no others as good They have nothing to do with any particular economic theory, or theory of history: they are not based on any worship of efficiency, or of the superior virtue or the historic mission of the working class They have nothing to do with Marxism, or Fabianism, or even Labourism— though all these have no doubt a good deal to do with them They are simple affirmations about the root principles of comely and decent human relations, leading irresistibly to a Socialist conclusion If I were talking to-day to persons who had grown up in the same mental climate as I did, I should hardly need to add that before long my favourite weekly reading was the New Age I was, of course, an 'intellectual' of the middle class had I been a worker it would probably have been the Clarion, to which I took a little later, after overcoming an initial distaste for its jollity and its liking for getting people to go about in droves Judged by any standard, the Clarion was well past its prime when I first met with it, but it was still a considerable force in the industrial centres I did not join up with any Socialist body until 1908 Then, shortly before leaving school, I discovered a small branch of the Independent Labour Party in my home town, and joined it, but found it rather depressing A few months later, I celebrated my first week in Oxford by joining the University Fabian Society and its parent body in London, and my second week by starting, with one friend I had made a few days before, a new paper, called The Oxford Socialist I remember waylaying R H Tawney in the quadrangle at Balliol and getting him to write me an article That was our first meeting, he was then the leading figure in the small band of University Tutorial Class Tutors connected with the Workers' Educational Association Socialist Prospects Forty Years Ago As I look back and try to discover what were my expectations in those days about the future of Socialism and of the Labour movement, I find it difficult to be sure what I felt or expected. 1

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think I felt sure that Socialism was the cause of the future, and that some day there would be a Socialist society from which poverty would have been banished—and therewith the unpleasant necessity of worrying one's head about economic or social problems, as against the many more attractive things one wanted to do instead I was then reading and writing poetry at a great rate, and much more interested in literature than in economics, of which I knew nothing I did not want to be a politician, or to concern myself with such matters as economics except in the hope of pushing them away by getting their problems solved on Socialist lines Socialism presented itself to me, not as an economic or political doctrine, but as a complete alternative way of living—as I still regard it. In this guise, it offered itself as something which seemed at one moment very near, and at another a long way off When it seemed very near, I was feeling revolutionary, and dreaming of a day when, how I hardly knew, the masses would rise up and overthrow capitalism and create on the morrow a complete Socialist society But at other moments capitalism looked to me very well entrenched, and I envisaged a long process of Socialist education and propaganda culminating in its destruction at some distant date in the future I do not think I ever, though I became a Fabian, contemplated a gradual evolution into Socialism by a cumulative process of social reforms My notion of the advent of Socialism was always catastrophic, whether it should come late or soon I was never in the very least a * Lib-Lab ', and the last thought that could have entered my head would have been to look hopefully on the Labour Party as the heir to the Liberal tradition Indeed, in those days I had no love for the Labour Party, though as a member of the I L P as well as of the Fabian Society I belonged to it The Labour Party of the years between 1906 and 1914 was much too 'Lib-Lab' for me I was well aware that nearly all the Labour victors of 1906 owed their seats in Parliament to Liberal support, and that not a few of them were ex-Liberals who at the behest of their trade unions had changed their party but not their opinions Year by year after 1906, and even more after the elections of 1910, which left the Liberal Government more dependent on Labour support, I could not help seeing more and more plainly the ties in which the Labour Party was held by its support of the Government, the bargaining with the Liberals over seats and electoral alliances, and the wide gap between the Labour right wing and the left A left, may I remind you, that was becoming stronger and more vocal as the cost of living rose, and as the claims of the workers were postponed to the exigencies of party politics or side-tracked—as I saw it—by Lloyd George's Bismarckian social insurance measures—denounced by Hilaire Belloc as leading to the 'Servile State.'

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British Socialism before 1914 Two things impress me above all others as I look back on the feelings of those years One is the insularity not only of my own outlook, but of that of most of my contemporaries—if ' insularity' is the right word The other is the sense of squeezability of the capitalist orange By our 'insularity' I mean, not that we were unaware of foreign countries or of a community between our problems and theirs, or that we ignored ideas from abroad, but that, despite our awareness and our openness to other peoples* ideas, we thought of ourselves as fighting the battle for Socialism as a national battle, side by side with similar battles that were being fought elsewhere, and had no notion of our particular struggle being altered in its nature or seriously deflected by the course of international affairs We were simply not considering world war as a factor, or social revolution as a world event We were, in effect, most of the time assuming that capitalism would continue, developing but not essentially changing, until we were ready to supersede it, and that it could afford, out of its surplus earnings, to make large concessions to working-class claims without losing its potency to 'deliver the goods' We were very far from the mood in which Marx and Engels had confidently expected a rapid intensification of the 'contradictions' of capitalism, to be manifested in recurrent and increasingly severe crises, each of which might prove to be the last—the death-throe of capitalist exploitation, the birth-pang of Socialism We expected capitalism to last our time, unless we roused the workers to overthrow it, and this, I feel sure as I look back, gave us confidence to preach left-wing doctrines, because we were not afraid that labour revolt might paralyse or slow down capitalist production without putting any alternative system in its place Syndicalism and the Labour Unrest I am of course speaking now, not of the Labour leaders of my youth, but of my contemporaries of the Socialist left and of their analogues in the trade unions The political conditions which confined the Labour Party of the years before 1914 to playing a secondary role as the ally of Liberalism helped to breed in the young a spirit of antagonism to the compromises of politics and to prepare a welcome for the industrialist theories of working-class action which were influencing many workers in France and in the United States The great 'Labour Unrest' of the years immediately before the First World War was not in any sense a product of French Syndicalist or of American Industrial Unionist theory These became influential in Great Britain as a result of the unrest and as attempts to give it a clear meaning they were rationalisations rather than causes The causes were rather the freeing of trade unionism from the chains of the Taff Vale Judgment by the Trade

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Disputes Act of 1906 and the rising prices which parliamentary action seemed able to do nothing about, plus a sense of power which the advent of the Labour Party had first stimulated and then flouted The rise of the militant suffrage movement also had a little to do with it, and it is undeniable that there was in the air a feeling of impatience of old restraints which affected not only Bergsonian philosophers but also the man in the street The victory of 1906 had seemed at the time to promise so much within a very few years it seemed to contemporaries to have achieved so little— infinitely less than, looking back on it now, we can see that it had actually brought to birth. The wave of 'Labour Unrest,' with militant Syndicalist and Industrial Unionist ideas carried on its crest, struck Great Britain in the middle of my university career It struck me, and my student contemporaries We watched the strikes of 1910, 1911, and 1912 with fascinated attention, attracted above all in them by anything that involved an assertion of the worker's claim to equality of human rights with his ' betters ' Strikes against tyrannical employers or foremen, strikes for the right to a share in determining industrial policy, strikes for the right of workmen to do as they pleased in their hours of freedom from labour, strikes for trade union ' recognition,' sympathetic strikes in which workers asserted their right to refuse to handle * tainted goods'—all these possessed a human appeal which seemed to us, in comparison with the familiar processes of collective bargaining about wages and hours, to involve an assertion of higher status—a revolt against the ' undemocracy' of capitalist enterprise and of the bureaucratic State Guild Socialism Yet most of us were very moderate revolutionaries after all— trade unionists and young intellectuals alike Most of us did not swallow whole the Syndicalist gospel of ' Direct Action,' or throw overboard the parliamentary method of advance towards social equality, or even accept in full the Marxist doctrine that the0 State was to be regarded as simply an instrument of the capitalist class, and would have to be overthrown and replaced by a new proletarian State made in the imagine of the governing class of the coming revolutionary era We tried to construct a theory of Socialism that would embody and reconcile what was good in the conflicting theories of Fabians and Syndicalists, of the Labour Party—as far as it then had a theory—and of the Industrial Workers of the World For the group with which I was associated, this attempt was embodied in Guild Socialism, which for a time, though sponsored mainly by a small body of Socialist intellectuals, exerted a widespread influence on the trade union leaders—especially on those younger leaders who were in search of a halfway house between

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old-style trade unionism, with its limited objectives, and the fullblooded revolutionism of Tom Mann and the Industrial Unionists I am not suggesting that Guild Socialism ever bit deeply into the consciousness of the Labour movement I think it was too intellectual a creed ever to do that, and too little capable of being simplified down to such emotive slogans as gave Marxism, despite its intellectual complexity,its mass-appeal But an idea closely associated with Guild Socialism, with Syndicalism, and with Industrial Unionism did get across to large numbers of the younger workers This was the idea of the ' control of industry'—of ' workers' control' This idea, however, in its Syndicalist and Industrial Unionist forms, came sharply up against the traditional Socialist advocacy of nationalisation, as it had been preached by the stalwarts of both the Independent Labour Party and the Social Democratic Federation It was therefore unacceptable to most Socialists, whereas Guild Socialism, which retained the demand for national ownership of the means of production, while advocating that the administration should be entrusted to ' Guilds' representing all the workers ' by hand and brain' organised on an industrial basis, enabled Socialists to take over the Iibertarian drive behind the Syndicalist movement without breaking with Socialism as they had understood it in the past Even the Webbs, in their Constitution for the Socialist Commonwealth of Great Britain, went some way towards compromise with the Guild idea, and most of the younger working-class Socialists of the I L P went a good deal further, though most of the older leaders did not Philip Snowden, in particular, fought Guild Socialism and ' workers' control' as forms of anarchy quite as implacably as he had fought Lloyd George's Insurance Act as an attempt to introduce the ' slave State ' The old collectivist Socialism, he kept saying, was good enough for him Ramsay MacDonald, too, disliked the new ideas, but characteristically temporised, and tried to capture the slogans of the Guild Socialists without changing his meaning The battle of ideas continued to be fought out during the First World War. The many and quick changes in the factories called for by war needs—the dilution of labour, the suspension of cherished craft union practices, the questions about who should be called up for the armed forces and who left in the workshops—gave a strong impetus to the demand for ' workers' control' But, as the war dragged on, the emphasis shifted more and more from matters of workshop organisation to matters of the ' call-up', and anti-war feeling grew stronger when all who were willing to go to the forces had gone and it came to be a question of prising more and more reluctant workers out of their jobs Moreover, the workers became more and more uncertain what the war was about, and more inclined to call for a negotiated peace as against the entire victory required

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by Lloyd George and his government colleagues, who by that time included the leaders of the parliamentary Labour Party The Russian Revolution Into this cauldron of conflict was thrown the Russian Revolution of 1917 I think nearly all of us recognised this as the earthshattering event it was, but we held differing views about its nature, and these differences grew steadily wider after the Bolshevik seizure of power As long as the war lasted, the growing numbers who wanted peace rather than absolute victory were held together, support for the Stockholm Conference which the Russians tried to convene acting for some time as a bond of union But even during the war the Russian Revolution caused the shop stewards' movement to take a more militant turn, which foreshadowed the coming of the Communist Party There was a growing cleavage between those who regarded * workers' control' as a form of industrial self-government, to serve as the complement to parliamentary democracy, and those for whom' workers' control' meant the social revolution and the dictatorship of the proletariat The one group insisted on the internal democratisation of each industry, through the strengthening of the trade unions and the development of * encroaching control' by means of an extension of collective workshop bargaining: the other insisted that the workers could win no real control until they had made themselves masters of the State, and that the true democratic control was control by the whole working class, organised as the masters of a new revolutionary State I am of course here over-simphfying, for there were many intermediate attitudes, and most active Socialists did not formulate the issues clearly in their own minds But the shop stewards' movement did break up into revolutionary and ' constitutional' factions, and then went to pieces as soon as the wartime scarcity of man-power disappeared, and the Guild Socialists were riven into three fractions, one of which was speedily in full cry against the authoritarian tendencies of Bolshevism, while a second was in process of going over to the Communist side, leaving a centre, to which I belonged, supporting the Russian Revolution but standing out strongly against any attempt to apply its ' democratic centralism' or its method of dictatorship to the half-democracies of the West The New Labour Party of 1918 This struggle was only beginning when Arthur Henderson, driven out of the War Cabinet because of his support of the Stockholm Conference, set about reorganising the Labour Party on a wider basis as a claimant to political power It needs to be remembered that up to 1918 the Labour Party had never had any pretensions to be so regarded. It had contested only a small number

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of seats, mostly in alliance with the Liberals, and it owed a high proportion of its election successes to the existence of two-member constituencies in which the Liberals could be persuaded to concede it one of the seats in return for a common front against the Conservatives But after 1916 the Liberal Party was rent into two, and Henderson saw the chance of making the Labour Party the heir to its historic position Where there had been only a few constituency Labour Parties and a scatter of small I L P branches, he set about the huge task of organising a party machine capable of fighting nearly every seat at the first post-war election, and in order to achieve this he converted what had been a loose federation of trade unions and small Socialist societies into a nation-wide party aiming at mass individual membership The I L P leaders, who had been from 1914 an anti-war opposition within the Labour Party—an opposition which Henderson resisted all attempts to drive outside its ranks—did not at all like the new plan, because it threatened to deprive the I L P of its key position of influence as the chief propagandist agency and policy-maker for the party as a whole But, weakened by their differences with the trade union leaders over the war, they were in no position to resist, and MacDonald, their foremost leader, was already preparing to shift his main allegiance from the I L P to the Labour Party as soon as the war was over Henderson, aided by Sidney Webb, was able to carry his plans through the Party Conference with only a scattered opposition from a few I L P ers on the left and a few trade union leaders, who wanted a purely working-class party without the intellectuals, on the right The reorganised Labour Party was heavily defeated by the Lloyd George Coalition in the election of 1918, but the new machine had been made, and its chance was soon to come The Acceptance of Gradualism Looking back, it is easy to see—much easier than it was at the time—the immense significance of the Labour Party reorganisation of 1918 In terms of declared policy, there was a sharp move to the left Up to 1918, the Labour Party had never formally adopted a Socialist creed it had been an exponent of immediate working-class demands and of a vague social idealism which trade union divisions forbade it to formulate into a Socialist definition of its arms Webb and Henderson and MacDonald, in drafting and getting accepted the new declaration of policy embodied in Labour and the New Social Order. committed it to Socialism, but also committed it equally to seek Socialism exclusively by constitutional and gradualist means At the same time, by enlarging the basis of membership and making a general appeal to men and women of goodwill to join, they replaced the I L P as the principal local prganising and propagandist agency of the movement by a network of local Labour Parties concerned much more with electioneering

BRITISH LABOUR MOVEMENT—RETROSPECT AND PROSPECT

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than with preaching Socialism, and therefore disposed to keep off militant tactics that were liable to estrange the marginal electors The effect was not that the Labour Party became less Socialist than it had previously been * that could hardly have happened It was that it became more completely committed to a middle way This indeed was involved in the whole conception of making it the heir of Liberalism and aiming at the speedy attainment of office An outright Socialist Party could not, in 1918 or for long afterwards—could not, indeed, to-day—hope to be more than a minority group in Parliament There were neither enough Socialists nor good enough prospects of making them to wrest the position of His Majesty's Opposition from the Liberals without making Socialism appear to be a moderate creed, which could win the support of citizens who were by no means ready to welcome a revolutionary transformation of their way of life The main body of the British people did not want revolution the most it could be hopefully asked to vote for was social reform, with a dash of Socialism by way of seasoning But the seasoning had to be just hot enough to keep the main body of believing Socialists willing to remain in the Party, and to campaign for it, rather than desert it and join up with the small revolutionary wing, which was beginning to take on a Communist shape The Non-Communist Left Between the constitutional Social Democracy of the new Labour Party and the militant Communism of the new extreme left, the middle groups, to which the Guild Socialists mostly belonged, could find no place to stand, when once the post-war slump had set in, and the militant movement in the workshops had been destroyed by the advent of large-scale unemployment They became a permanent minority, invoking vainly the spirits of the pioneers—of Keir Hardie, of Blatchford, and of William Morris— while the leaders of the party, with the support of most of the rank and file, got on with the ' real business' of winning parliamentary power It was obviously impracticable—as the I L P discovered after 1931—to establish a new party of the left in opposition to both the Labour Party and the Communists, and attempts to work inside the Labour Party could be effective only on condition that they did not endanger its electoral success There was always in the local Labour Parties a considerable amount of left-wing sentiment, which was able to find expression at particular moments, but never to establish any lasting ascendency After the depression of the early 1920's this sentiment at first expressed itself chiefly in industrial action Disappointment with the minority Labour Government of 1924 combined with anger at the policies of its Conservative successor to provoke the movement which culminated in the General Strike of 1926 During this period Lansbury's

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Labour Weekly became the principal organ of non-Communist leftwing sentiment, but the collapse of the General Strike and the defeat of the miners brought the phase of industrial militancy to an abrupt end and shifted trade union policy sharply to the right Mond-Turnerism and MacDonaldism Then followed the Mond-Turner negotiations for industrial peace and the second minority Labour Government under MacDonald, which lasted from 1929 to 1931 There is no need for me to re-tell the calamitous story of those years The second Labour Government doubtless had bad luck in being faced by the earlier phases of the great world slump, but this cannot excuse either its sheer failure to cope with the growing problem of unemployment or its evident lack of understanding of the forces with which it had to contend It was made all too clear that MacDonald had abandoned his Socialist beliefs, that Philip Snowden was an orthodox capitalist financier and Free Trader much more than a Socialist, and that most of the Cabinet were merely bewildered by the crisis and had no notion of the right ways of meeting it The one excuse that can be made for MacDonald is that he became exasperated at the futility of his Cabinet, but it is a poor excuse, for he was quite as futile as the rest The Labour Party after 1931 The defection of MacDonald, Snowden and J H Thomas, and the crushing defeat which the Labour Party sustained in 1931, had a momentary effect of strengthening the Labour left and causing the Party Conference to adopt a stronger Socialist programme But even in 1932 it was apparent that the leadership was nervous about the new line The test issue that year was the proposal to include in the party programme nationalisation not only of the Bank of England but also of the joint stock banks This was carried, against the platform and against Ernest Bevin's strong opposition, but it soon became plain that the party leadership did not intend to act on the decision They were willing to include in the short-term programme considerable measures of nationalisation of industry and the taking over of the Bank of England, but taking over the joint stock banks they regarded as bad electioneering, because it would offend the middle classes, and they managed to persuade themselves that the conditions necessary for Socialist planning could be secured without it Moreover, in the nationalisation plans that were worked out by a series of committees after 1931 the model adopted was that of the Public Corporation, taken over from the Conservatives who had used it for the Central Electricity Board as well as for the B B C , and on the question of ' workers' control,' which was advocated by some of the trade unions but opposed by others, the Labour Party leaders showed themselves strongly

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hostile Their plans of nationalisation were substantial and challenging to some great capitalist interests, especially in the cases of coal and steel, but they were plans which could be earned out without interfering seriously with the main structure of capitalist ownership and control As against this, the Labour Party of the 1930's stood for a great, development of the social services and of redistributive taxation of incomes—but not of property Except for a prolonged hesitation over family allowances, about which the trade unions were sharply divided, the Party came to stand for a far-reaching programme of social welfare, as well as for a substantial amount of public ownership (with full compensation) and a not very clearly defined measure of national economic planning In its proposals for dealing with unemployment it was deeply influenced by Keynes: indeed, it came to put almost entire faith in the Keynesian mechanisms for maintaining full employment under capitalism Apart from its advocacy of nationalisation, it was coming to be more and more plainly the inheritor of the traditions of progressive Liberalism, and less and less tolerant of the more aggressive Socialists who remained within its ranks Foreign Policy in the 1930's While these policies were being worked out in relation to home affairs, the international situation was becoming continually more menacing as the belligerent intentions of the Nazis grew more and more evident But the Labour Party found great difficulty in adapting its foreign policy to the new conditions It had been in the 1920's the party of peace and disarmament and of fair treatment of Germany, and it was not easy for it to change its line in face of Nazi aggression George Lansbury, its best-loved leader, was a pacifist, and, even when the danger from Germany had become plain, many Socialists hesitated to support rearmament under Conservative rule, fearing that the strength thus acquired would be used in the wrong way Even after the Party had declared for rearmament and Lansbury had resigned from the leadership, fear of world war kept the Party from advocating effective help to the Spanish Government in the Civil War and induced it to take its stand by the policy of ' non-intervention' This hesitancy was responsible for the revival of left-wing activity in the years before Munich There were movements, in which some Liberals and even a few Tories joined, for a ' Popular Front' or an 'United Front' against Fascism, in the hope of rallying sufficient support to turn out the Government But the Labour Party leadership set its face firmly against all such movements, partly because it was suspicious of Liberal help, but mainly because it would have nothing to do with the Communists, who threw their

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entire energy into the anti-Fascist campaign and contrived to get a great deal of its organisation into their hands By this time, the feelings of the Labour Party leaders towards the Communists had become much too embittered for any sort of collaboration to be accepted This is hardly to be wondered at, in view of the continual vilification to which they had been subjected and of the struggle that had been going on in the trade unions ever since the turn towards industrial pacifism that had followed the defeat of the General Strike The trade union leaders regarded the Communists as intolerable trouble-makers at home, and much of the friendly feeling towards the Soviet Union had evaporated in face of the increasing totalitarianism of the Stalinist regime. In Great Britain the Communist Party was small but active, and it saw in the condition of international affairs in the middle 1930's its chance to establish a leadership of the left against the existing leaderships of the Labour Party and the trade unions The nonCommunist left thus found itself in a very difficult position If it joined hands with the Communists in the anti-Fascist crusade, it ran the risk of being driven out of the Labour Party and of becoming their captive But if it refused to act with the Communists against Fascism, it was powerless to bring any effective pressure to bear on the official Labour leadership This was the dilemma that led Sir Stafford Cripps and Aneurin Bevan into courses which resulted in their expulsion from the Labour Party and the dissolution of the left-wing, non-Communist movement they had set up The Second World War The Second World War, and the Nazi-Soviet Pact which heralded it, reunited the Party, and for the time threw the Communists into deep discredit and unpopularity But the Nazi invasion of the Soviet Union presently rehabilitated them, and enabled them to play a leading part in the workshop movements for high production Their influence in the trade unions increased, and remains considerable in some unions even now, but there was no parallel movement in the political sphere The Labour Party remained as determinedly hostile to the Communists as ever, and a good deal of the non-Communist left returned to it, while others found a temporary outlet during the suspension of parliamentary contests under the Churchill Coalition in Sir Richard Acland's Common Wealth movement As soon as the Coalition broke up, most of these latter joined the Labour Party, and the election of 1945 was fought by a reunited movement which had temporarily buried its dissensions The programme on which the Labour Party fought the election, though vague about international affairs, was in other respects strong enough to satisfy the left the victory sent a wave of enthusiasm through the movement During the five years that followed, the programme was carried into effect with remarkable

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completeness and fidelity. Yet, even by 1950, a great deal of the enthusiasm had died away We must ask why 1945 and After Part of the answer is obvious enough The enthusiasts of 1945 had not taken account of Great Britain's changed economic position in the post-war world, so as to expect a continuance of shortages and a stop on wage-movements in face of mounting profits and conditions of full employment Nor had the workers in the industries due for nationalisation realised how little difference the establishment of Public Corporations would make to their actual status and conditions of work Nationalisation had been a dream the reality brought disillusion Nor, again, had the main body of active Labour workers visualised in advance a state of affairs under a majority Labour Government at all like that which they found to exist There had been vague anticipations of a changed way of life and of a putting down of the mighty from their seats But, after five years, the upper and middle classes remained, grumbling but unsubdued, and the class structure still seemed to be much as before Perhaps good Socialists ought not to have been disappointed at this, but they were Perhaps they ought not to have felt uneasy when so many of the key positions in the new Corporations and in other branches of public life were given to antiSocialists, and when Labour Honours Lists—except for a sprinkling of trade union and co-operative ennoblements—looked very like those of previous Governments Perhaps they ought to have been satisfied with the great advance made in the social services, with the practical disappearance of destitution and really grinding poverty, and with the undoubted improvement in social security and in the standards of living of a large part of the people, and ought not to have expected a long-established and well-entrenched class system to be greatly altered overnight The fact remains that the limitations of what had been achieved were evident, whereas the improvements were no sooner made than they came to be taken almost for granted It is always easy to absorb an addition to real income, and gratitude for past favours is seldom a powerful political sentiment. World Affairs since 1945 A second factor making for disillusionment among Socialists has been the steady worsening of the international situation, both from a specifically Socialist and from a more general point of view In 1945 I think most British Socialists expected democratic Socialism to emerge as the dominant force over most of Europe— in France and Italy, in Belgium and Holland, in Czechoslovakia, and in Germany, as well as in Scandinavia They felt that the

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British Labour Government, especially in Germany, could have done much more than it actually did to forward the Socialist cause and to strengthen the Socialists' hold on society it seemed that, in the name of democracy, the Government was following a neutral policy which in practice played into its opponents' hands They felt that little attempt was being made to establish a common front of European Socialism against the capitalist parties, or even to prevent a revival of Fascist tendencies They were encouraged by the statesmanlike handling of the problems of India and Burma and by a forward policy in most of the Colonies, but they could not make out what Mr Bevin was playing at in Palestine and the Middle East, and they were acutely disturbed by what was going on in Greece I think most of them also disliked the increasing subserviance of Great Britain to America, but did not see how to avoid it They were not prepared as a body to face the serious deprivations that would have resulted from a withdrawal of American help, even before that help had got tangled up with the cold war between the Soviet Union and the West Disquietude about international affairs became much deeper and more pervasive as, step by step, Great Britain became more deeply committed to an alliance under American leadership against the Soviet Union, and as, on the American side, the alliance turned more and more into an anti-Communist crusade in which Western values came to be identified with those of capitalist (called ' free') enterprise and Socialism came to be confused with Communism in an indiscriminate warfare against the left all over the world I cannot by any means exempt the Soviet leaders from a share in the blame for this unhappy state of affairs Their fears of American' imperialism ' and ideological belief in the inevitability of a world conflict between capitalism and Communism, with the non-Communist Socialists counted as part of the capitalist bloc and denounced as the betrayers of the revolution, destroyed the possibilities of panEuropean economic co-operation, and their liquidation of the nonCommunist democratic regimes in Czechoslovakia and Poland, together with their destruction of Social Democracy in Eastern Germany, helped to force West European Socialists to the acceptance of the American alliance as the only course left open But I think most of us felt that a more Socialist foreign policy in 1945 could have prevented the disastrous senes of developments which began in 1947 and reached their height in the Korean crisis and the threat of war against China in 1950-51 Gradualism at Home and Abroad Indeed, it was all too evident throughout the period after 1945 that British Socialism had no international policy of its own and was in no way minded to put itself at the head of an international

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Socialist movement distinct both from Communism and from American conceptions of the ' free world' order I am sure this disastrous lack of an international policy was not due merely to Mr Bevin's presence at the Foreign Office or to Mr Attlee's dislike of the left to which he once belonged Its roots went much deeper: it was an outcome of the tendency to model foreign policy on the conditions prevalent at home In home affairs, the Labour Party stood entirely committed to gradualist constitutionalism it was the declared enemy of all revolutionary notions What its leaders could not see was that, even if this was the correct policy under British or Scandinavian conditions, its transference to other parts of the world might rest on a fundamental misunderstanding of the facts What was the use of telling peoples who had no experience of parliamentary democracy and had come through the searing experience of social war between the classes that they must do everything by strictly constitutional and parliamentary methods? Where the first necessity was to overthrow a still feudal aristocracy and to build up swiftly a new political regime to replace a ruling class tainted by collaboration with the Nazis, what was the sense in urging that the first need was to have free elections and that the displacement of the landlords and capitalists should be deferred until it could be done in due order under the auspices of a democratically chosen Parliament? Such precepts made nonsense, and were an invitation to the defeats which they have helped to bring about But Labour leaders who knew little about international affairs and had been accustomed to thinking politically in terms of purely national problems could not see an inch beyond their British noses, and it is not altogether surprising that the acutely suspicious leaders of the Soviet Union mistook their parochialism for subservience to capitalist and imperialist designs Whether there is now any way back from the mistakes made in international policy since 1945 I do not profess to know Certainly there is no present possibility of establishing that democratic Socialist' Third Force' which could, I feel sure, have become predominant in Western Europe if the task had been rightly tackled in the first instance Had that been done, such a Third Force, joining hands with India and Indonesia and Burma, could have prevented the division of the world into two hostile bloes, the one under Russian Communist and the other under American capitalist domination The danger of world war, which now overshadows everything, would have been much less, and democratic Socialism would have been, not third man out, but a great world influence in its own right This chance has been cast away, I repeat, not because Ernest Bevin was a bad Foreign Secretary, but because almost the entire leadership of British Labour has shown itself incapable of putting itself m the place of peoples who have not grown up in the British parliamentary tradition.

18

BRITISH LABOUR M O V E M E N T — R E T R O S P E C T AND PROSPECT

The Future: at Home and Abroad What then of the future? It is none too promising, even if we concentrate our attention for the moment wholly on home affairs For the time being, the Labour Party has done most of what it can afford to do towards the establishment of the ' Welfare State '— fully as much as it can afford if we are to be burdened for years to come with an immense expenditure on armaments out of resources which are scanty enough without such claims upon them As for nationalisation, the gilt is off the gingerbread, and, apart from that, the election programme of 1950 made it clear that the Labour Party did not know what it wanted to nationalise next and was quite unprepared with any further ambitious plans for the supersession of capitalist enterprise What is left with which to appeal to the electorate, or even to its own stalwarts, if neither social services nor nationalisation can play the major part? Very little, except 'Down with the Tones,' and that will serve only when the Tories have had a spell of power, and have given the poor something fresh to hate them for On the international plane, the prospects are even worse— yet they could be more hopeful if the Government would take a firmer stand against American and Communist hysteria and would, even now, constitute itself, with India and the majority of the peoples of Western Europe, the champion of peace There is no doubt at all that most of its supporters want peace, and would like to see their Government mediating between intransigent Americans and intransigent Russians, rather than lined up on one side of a divided world in company with Syngman Rhee and Chiang Kaishek and General Franco and all the reactionaries from pole to pole I say this, not out of any love for Communism, or any will to see Great Britain lined up on the other side I say it as a democratic Socialist, wishing to save the world from domination by either capitalism or Communism, and, above all, from war But I almost despair of our Government, at the eleventh hour, giving such a lead The Pioneers and Ourselves These are not comfortable words I have, alas, no comfortable words to-give you I cannot even offer you the usual consolation prize of a peroration about the spirit of Keir Hardie and Robert Blatchford and William Morris For these pioneers of the modern Labour movement were products of a situation which it is impossible to recall They were moved to strong indignation by the sight, everywhere they looked around them, of unmerited and unnecessary human suffering, among men and women and children whom they recognised as like unto themselves and as members of the same social family They were men who had grown up in a social atmosphere that was at one and the same time moral and

BRITISH LABOUR M O V E M E N T — R E T R O S P E C T AND P R O S P E C T

19

hard, and they inherited its moral tendency while they revolted against its hardness Growing up in the great days of British capitalist expansion, they saw lying ready the wealth that could be used to relieve distress, and they hated the system which in the name of individual self-reliance denied this use of it They became Socialists because they regarded capitalism and human suffering as inseparable partners, and saw no way save Socialism of making an end of both But to-day, though poverty is still widespread, the sheer misery the pioneers saw around them has been either done away with or tidied away out of sight There is very much less in the sights and contacts of everyday life to stir the sentiments of compassion and moral indignation, and misery afar off, which we do not see with our own eyes, has a great deal less power to move us than misery that directly affronts our senses Nor are most of us as sure about our morals as the Socialists were sixty or seventy years ago Two World Wars and the threat of more have dulled our sensibilities to other people's troubles, and have made the road to Utopia look much rougher and stonier than it used to look We trust our feelings less, and have much less confidence that everything will be brought to rights if we only do our duty by our fellow-men. The political realist and the logical positivist are abroad, to reinforce Communist jibes at Socialist sentimentalism After all, we can say, most people are not so badly off nowadays: the great threat to human happiness is no longer capitalism, but war and the totalitarian spirit which it encourages Can we not afford to relax our efforts for Socialism, having already achieved so many reforms? Is it even worth while to try really hard, when at any time a few atom bombs may sweep away all the fruits of our labours—not to mention ourselves9 What We Need Now I find this attitude fully understandable among those for whom politics and social affairs have never been more than a minor interest I find it partly understandable even among the more convinced Socialists, in face of the deep disappointments of the past few years It is not, however, my attitude, or I hope yours What 1 do recognise is that the British Labour movement has, over the past six years, exhausted the impetus that has driven it on since the 1880's and stands in need of a new interpretation of the Socialist gospel There is a great deal still to be done in developing the social services—education above all—as means of advance towards the classless society, but, even were the economic circumstances Jess restrictive, the gospel of human compassion could no longer have the same compelling power as it did There is an immense task still ahead in devising new forms of social ownership and control to replace capitalist enterprise, but few hearts will be lifted

20

BRITISH LABOUR MOVEMENT—RETROSPECT AND PROSPECT

up by the prospect of more nationalisation on the model of the existing schemes There is a keen desire for a world organised on a basis of friendly co-operation among the peoples to lift the poorer countries out of their primitive poverty, but how can we enlist that desire on the side of Socialism while we are showing ourselves the friends of reaction and the foes of revolution in countries which need revolution, even if we do not? I do not know how far Ralph Fox would have agreed with what I have said in this lecture, had he been alive to-day I do know that he was a fighter for the ideals and values which I have been trying to put before you, and that he died faithful to them. I pay tribute to his memory

WEAKNESS THE

ECONOMICS

THROUGH OF RE-ARMAMENT

STRENGTH BY

G.D.H.COLE

ONE

SHILLING

A UNION OF DEMOCRATIC CONTROL PUBLICATION

What is the UDC?

T

HE Union of Democratic Control is a non-party organisation, backed by voluntary subscriptions, which seeks to provide the facts upon which enlightened foreign policy may be formed Founded in 1914 by E D Morel and other outstanding champions of the democratic control of foreign policy, the U.D.C has campaigned without fear or favour on many great issues which have stirred this country and the world During the 'twenties the U.D C stood for full support of the League of Nations and for international disarmament Early in the 'thirties, in a series of remarkable pamphlets which achieved great influence at the time, the U D.C. exposed the international arms racket Later it opposed the betrayal of Abyssinia to Mussolini, supported the cause of the Spanish Republic, and warned of the dangers of Munich and appeasement. During the war it used its unique contacts in Europe to publish almost the first information that became available about the growth of resistance to Hitler in the occupied countries There is perhaps no other organisation in this country which has better or more numerous contacts with the new "men and movements of Asia Further information about the work of the U.D C may be obtained from the General Secretary, the Union of Democratic Control, 32 Victoria Street, London, S W.l (ABBey 3770). EXECUTIVE COMMITTEE Chairman F ELWYN JONES, M P. LEONARD BARNES LESLIE HALE, M P PRESTON BENSON MAURICE LICHTIG FENNER BROCKWAY, M P CATHERINE MARSHALL RITCHIE CALDER GUY ROUTH HAROLD DAVIES, M P REGINALD SORENSEN, M P BARBARA DRAKE DOROTHY WOODMAN TOM DRIBERG, M P EDGAR YOUNG (CDR R N RETD ) Hon Treasurer BEN PARKIN General Secretary BASIL DAVIDSON Organising Secretary AUDREY JUPP

THE ECONOMICS OF RE-ARMAMENT by G. D. H. COLE

One thing the plain man and his wife would like to know about re-armament is how it is likely to re-act on their standard of living. They have been warned that it will involve sacrifices ; but they have been given little idea how big the sacrifices are likely to be, or on whom they will mainly fall These questions are admittedly very difficult to answer in any exact way , for the answers depend on so many factors—some of them entirely outside British control. Indeed, the heaviest part of the burden of re-armament for the British people may well be, not the amount that the British Government spends on it, but the effect of other countries', and especially of America's, spending on the prices of the things we import, not only for making armaments but for meeting our ordinary civilian needs. How much Priority for Arms-Making? THUS, EVEN IF Mr Aneurin Bevan is right in maintaining that it is a sheer physical impossibility for Great Britain to carry out the Government's proposed re-armament programme for 1951-2, it does not follow that failure to spend the projected sums on armaments, on account of shortage of the required raw materials, will do much to ease the burden on the common man It may indeed make matters worse if it leads to unemployment at home, while the prices of British imports continue to soar because of the general inflation of world demand Of course, if the supply of raw materials that can be made available for our industries, even at very high prices, falls badly short of our needs and if, in such a situation, a very high priority is given to armamentmaking, the effect will be to reduce supplies of goods to the consumers still further, and to lower standards of living for the employed as well as for the unemployed and the under-employed. 3

I t is not clear how nearly absolute a priority has in fact been accorded to armaments over civilian requirements Mr George Strauss, in a speech explaining his own attitude after the resignations of Mr Bevan and Mr Harold Wilson, asserted that the arms programme remained conditional on the obtaining of enough materials to meet civilian claims, whereas speeches by Mr Herbert Morrison and others have suggested that the priority allowed to re-armament is to be, if not absolute, at any rate very high Whatever the precise intention may be in this matter, the fact remains that the actual and prospective forcing up of prices in Great Britain is a consequence mainly, not of British, but of world re-armament The Effects of American Stock-piling As A GREAT importing country, heavily dependent on imported materials as well as on imported food, Great Britain is already suffering severely from the shortages and from the tremendous rise in world prices t h a t have resulted mainly from American re-armament and stock-piling of essential materials The prices of our imports have risen much faster than the prices of the goods we export, and this tendency is likely to continue unless measures are taken on a world scale not only to allocate supplies of scarce materials, but also to control their prices and to stimulate additional production Such measures cannot be taken without the consent and full participation of the United States, which would need, in order to make them effective, not only to slow down its own buying from abroad but also to release for foreign use American materials for which there is an unsatisfied domestic demand It will take a great deal to persuade the Americans to act in this way, which will be represented as undermining their own re-armament programme, already proceeding at a furious pace , and it would be most unwise for us to reckon on enough being done to prevent world prices from continuing to rise sharply, and shortages from getting very much worse, as long as world re-armament goes on * Exports and the "Terms of Trade" E V E N I F BRITISH export prices, stimulated by the upward movement of material prices, were to rise sharply enough to narrow the gap, or, in more technical language, to bring about some improvement in the "terms of trade", this would not solve oar problem, because our re-armament measures will mean holding back from export, and using for our own military purposes, precisely those goods for which we are in the best 'position to raise our prices in the world market Even if the prices of such goods were to go up, we should have many fewer of them to sell In practice, the prices of our exports are most unlikely to rise as fast as the prices of our imports, because we shall be trying to fill the gap caused by the withdrawal of the goods other countries want most by selling more of * ln a few cases, where speculation has driven prices up even beyond the levels corresponding to increased American demand, there may be price recessions, even while the prices of most materials continue to rise This has occurred already (May, 1951) in the case of wool 4

things they want less urgently, e g, textiles. Moreover, in the world market for textiles and other exports which we shall be trying to push instead of goods now needed at home we are faced with rapidly growing competition from Japan and from Germany—countries whose absence from the world market helped us greatly in building up our export trade after 1945 Japan is already selling abroad more cotton goods than we are, and is in a position to supply even more, and at prices with which we shall find it hard to compete The Adverse Balance W E MUST THEN expect the "terms of trade"—that is, import prices as compared with export prices—to continue to move against us, unless the Americans show much more readiness than seems at all probable both to join with us and other countries in regulating supplies and prices, and to slow down their own re-armament in order to ease the burdens of other countries Already, on the figures for the first quarter of 1951, our adverse balance of trade had risen again to nearly £235 millions as against an average of £87 millions in 1950, and much less than that in the latter part of 1950 But for re-armament we should now be more than paying our way in terms of visible trade † As things are, we are already dissipating the balances we had begun to accumulate last year out of the earnings of our "invisible exports"—shipping and financial services and returns on overseas investments A small part of this deterioration in our overseas position may be due to our own buying of stocks of goods of which prices are rising and supply difficulties growing greater. But this can hardly account for much, because there have not been large supplies available for us to buy, and we are already faced with a sharp fall in our supplies of a number of vital materials—above all, of sulphur. The Consequences of the Cold W a r I AM STRESSING the adverse effects of world re-armament on our national economy because I want above all else to make it clear that this is capable of being a much bigger factor in depressing our standard of living than any re-armament we undertake ourselves Even if we did not propose to spend an additional penny on our own defence services we should still feel severely the adverse effects of re-armament by other countries, and above all by the United States, which, with their immense purchasing power and command of gold, are in a position to control the world market and to force up prices against other buyers to a practically unlimited extent. (†) I am speaking now of Great Britain's own balance of payments, and not of that of the whole sterling area A very large proportion of the increase in gold and dollar holdings in Great Britain during the past year has been due to the large sales of highly priced materials made to the dollar area by Commonwealth countries and colonial areas, which have in consequence increased their holdings of sterling These sums, though lodged in Great Britain, belong to the countries which have earned them, and not to us The improvement in gold and dollar assets gives an entirely misleading picture of Great Britain's international economic position 5

If we want to avoid having our standards of living forced down we must somehow stop the cold war as a whole and not merely contract out of the part we are at present committed to taking in it We must work for an improvement in world relations, for an agreement to restrict armaments all over the world, and for a modus Vivendi between the Communist and the nonCommunist sectors of the world without this we shall be bound to suffer a fall in our standards of living, even if we were to give up re-arming ourselves. Mr. Gaitskell's Assumptoons and Trade Union Reactions E V E N I F THAT IS likely to be the most disastrous factor, the burden imposed by our own re-armament is of course a very serious addition to it Mr Gaitskell's comparatively mild Budget has led some people to believe t h a t the economic consequences of re-armament will be less onerous than was feared This is, for several reasons, a thorough misunderstanding of the facts The Budget was "mild", in appearance, (a) because the Chancellor refused to increase subsidies to offset part of the rising cost of living, (b) because he limited to the barest minimum his concessions to old age pensioners and other groups most adversely affected, and (c) not least, because he assumed that the workers would allow their wages to lag behind rising prices, and would thus accept a fall in their living standards without using their economic power to resist it If he had not made this assumption he would have needed to budget for a much bigger surplus—that is, to raise a considerably larger amount by taxation—in order to reduce inflationary pressure Personally, I do not think the Trade Unions are likely to allow real wages to fall seriously without putting up a good deal of a struggle , and I expect the inflationary pressure to become considerably greater than the Chancellor has allowed for This, however, does not mean that the workers will be able to avert a fall in their living standards it means that the more they succeed in raising money wages, the less their money will buy They might be able to transfer a small part of the burden from their own shoulders to pensioners and others, rich or poor, who live on fixed incomes But the fall in consumption will have to be felt somewhere, for the simple reason that, in face of the demands of re-armament on some industries and of the need to export more consumers' goods to replace the goods we need to keep at home for use in re-armament, there will be fewer consumers' goods and services to be shared out among all sections of the population Even if the richer people reduce their consumption to a certain extent—and it is very doubtful if most of them will—the main impact is bound to fall on the largest body of consumers, the working classes Re-armament Costs in Future Years SECONDLY, THE BUDGET was "mild" because only a small part of the total cost of our national re-armament programme is expected to fall into the current financial year We have promised the Americans that we will spend £4,700 millions on defence services over a period of three years We cannot, however, spend anything like a third of this amount in the' first year, 6

because it takes a considerable time to shift factories over from making goods for the home civilian market or for export to armament-making The Budget estimate for this year is £1,300 millions—and that is unlikely to be reached except as a consequence of a further sharp rise in costs If costs do rise sharply, we may spend as much this year as Mr Gaitskell has budgeted for, but the higher cost will leave us with much less than one-third of our estimated programme actually carried out Moreover, in view of rising costs, the total sum we shall need to spend in order to carry out our three years' programme in real terms is certain to be much more than £4,700 millions—even apart from the fact that the original estimate made no provision for the higher running costs involved in the maintenance of the increased force under arms The bill for defence services is bound, unless the not-so-cold war ceases, to be a great deal higher in 1952-3 and in 1953-4 than it can be in 1951-2, and to involve a much bigger disturbance of industrial production and a much greater re-distribution of man-power at the expense of civilian supplies We are now spending about 10 per cent of our gross national product on armaments, as against less than 7 per cent a year ago Two years hence we may easily be spending 15 or even 20 per cent, but no one is in a position to make an exact estimate, since both the cost of armaments and the total volume of production are uncertain factors The Shortage of Materials and its Effects How HEAVY THE burden will actually be, and how it will affect our standards of living, obviously depends on what happens to productivity in Great Britain as well as on the relative movements of import and export prices We have been quite remarkably successful during the past few years in increasing both our total production and the productivity of each worker's effort, in spite of the fact that we have been short of capital for investment and have had to keep a large quantity of obsolescent plant and buildings in use This success has been partly due to full employment, which has eliminated a great deal of waste of time that used to occur during working hours in waiting for work when orders were slack It has been partly due to greater effort, as in the case of the steelworkers, whose acceptance of a continuous working week alone made possible the big increase in the output of steel * One effect of re-armament will be to make it much harder to maintain the increasing rate of productivity that has so greatly eased our economic difficulties The shortage of key materials is already resulting in short-time working, and in waste of working time, in a number of important industries , and this adverse factor will become very much more widely operative unless we are able to secure some better allocation of materials that are in short world supply—sulphur, non-ferrous metals, cotton, and a number more The rayon industry is already threatened with a disastrous fall in output because of the sulphur shortage, which also affects many other industries, as well as agriculture Motor-car firms are already working short-time because *An achievement now likely to be brought to an end by the world shortage of scrap

7

there is not enough steel the steel industry is menaced by shortage not only of scrap steel but also of high-grade iron ore The cotton industry needs more raw cotton than the Americans are ready to spare—and so on, through a wide range of materials and of industries affected by the madequacy of available supplies The estimates given in the official Economic Survey for 1951 assumed an increase of production in that year of only 4 per cent, as compared with 9 per cent in 1950—a figure which required only that the actual level of output achieved during the final quarter of 1950 should be maintained But even this estimate may be very difficult to make into reality if there is a serious shortage of essential materials nor should it be overlooked that there is bound to be a loss of output while factories are re-tooling for the change-over from civilian work to arms manufacture. At the very best, it is clear that increased productivity cannot be expected to provide for the increased output of munitions of war, and of machinery for making them, without a substantial fall in other supplies Moreover, a considerable proportion of these other supplies will have to be diverted to export in order to buy materials at inflated world prices Wages and Profits I T IS SOMETIMES argued t h a t the workers' standard of living can be maintained, despite higher expenditure on armaments, by raising money wages at the expense of profits But this is not really possible under existing conditions to more than a very limited extent Profits have been running at an exceedingly high level, and it is true enough that many industries—though by no means all—could easily afford to pay higher money wages But, if they did, the increase in money wages would of itself do nothing to add to supplies of consumers' goods—that is, unless the increase were given as a return for a correspondingly greater output—which would mean that more materials would be required I t would result mainly in higher prices Or, if prices were held down by government control, there would be a chase after scarce goods and a diversion into buying more of whatever could be supplied at least real cost in productive resources—that is to say, highly taxed goods and services of which the major part of the price goes straight back to the Government Even of such goods, for example beer and tobacco, it would not be easy to increase the supply.

Alternatively, if prices were kept down, the workers would have money to spare which they could save, but not spend, because there would be nothing to buy with it Such saving would have to be made compulsory, or it would be impossible to prevent the growth of black markets in defiance of the price controls But in practice, in face of rapidly rising costs for materials, transport, and other services which enter into the costs of production of most finished goods, the Government cannot keep prices down except by higher subsidies, which would require still higher taxes and would thus raise the whole problem over again 3

Even apart from the administrative difficulty of controlling the prices of an immense variety of finished goods, the notion that prices can be held down by cutting into capitalist profit margins is not so feasible as it sounds Profits are high and getting higher, not only because of full employment, but also largely because in most industries there is a very wide gap between the costs of the most efficient firms and those of the least efficient which it is necessary to keep in business if we are to maintain a high aggregate output of essential goods These less efficient firms cannot at present be either driven out of business and replaced, or compelled to improve their efficiency, because it is not possible to spare resources for building better factories and installing improved plant on more than a small scale indeed, this will be possible now only on a reduced scale in most branches of production because of the diversion of capital to the re-equipment of the arms industries As long as high-cost firms have to be kept in production and allowed to cover their costs, as they must be under capitalist conditions, prices have to be allowed to stand at a level which yields very big profits to the more efficient firms , for otherwise the inefficient firms would not be able to carry on Higher wages in these circumstances could not be taken out of profits without reducing total output by forcing the inefficient factories to close down. What Happens to Profits T H E R E IS, APART from this, a further reason why profits cannot be used on any considerable scale to supplement working-class purchasing power The major part of the high profits now being made is not passed over as spendable income to the owners of business concerns The State takes a large share of it in taxation, both directly on business profits and on the incomes of the owners , and a large part of the rest is not distributed as dividends but is retained in the businesses as reserves, and is used for investment in new plant and buildings If either of these elements in the profits total were transferred to the workers for spending on consumers' goods and services there would be a fall in the sums available for investment in new capital equipment, and production would soon suffer, unless the State took back an equivalent sum in taxes, and used it for investment—in which case it would not be available for spending on consumers' goods It is necessary to maintain a high level of investment in order to improve industrial efficiency, and even to prevent it from falling off, and it would do the workers no good to increase their current spending if the effect were to reduce productivity and thus lead to a fall in the total supplies of good. and services in the near future Who Gets the Distributed Profits? T H E R E REMAINS THE part of profits that is paid out in dividends and interest to the owners of capital, and, after the State has taken toll of it through income tax and surtax, is available for consumption or investment No doubt some part of this income could be diverted from richer to poorer spenders if direct taxes on incomes were increased still further, but it has to be remembered that by no means all recipients of incomes derived from 9

profits are wealthy people They include retired persons living on their savings, or on small inherited incomes , private traders and proprietors of small-scale productive enterprises, and other "independent workers" whose gains are in many cases no larger than many workmen's wages , and a part of profits also goes to educational and other trusts and agencies which exist to maintain services it is highly undesirable to cut down The total sum left in the hands of really rich people, though considerable in itself and provocative when it is used for luxurious living, would go only a little way if it were shared out among the poorer sections of the population That is no good reason against cutting down still further the spendingpower of the rich, but do not let us deceive ourselves into the belief that re-distribution of this kind could make any substantial difference in reducing the effects of re-armament on the standard of living of the main body of the working class The men who spend large sums to-day do so for the most part, not out of incomes derived from business profits, but out of capital gains or by allowing their capital to run down while it is still theirs to make hay with How Much Re-distribution of Incomes is possible? I N D E E D , IT IS obvious on the face of it that further re-distribution of incomes cannot under present conditions do much to avert a fall in the standards of living of the main body of the people If investment has to be kept up in the national interest—that is, if a high proportion of total output has to be used not for consumption but for maintaining and improving productive power—and if, further, there has to be a large diversion of what remains to the production of munitions of war, the brunt of this diversion has to be borne by those who would have been the consumers of the goods and services which either cannot be produced at all, because there is no more productive power available, or which have to be sent abroad in payment for imports of materials The only alternative is that total output should be increased to bridge the gap , but such an increase involves more imports and the finding of more exports to pay for them By far the greater part of total consumption is done already by the workers, and by other persons whose standards of living are no higher than those of many wage-earners How are Incomes Distributed Now? L E T US CONSIDER the actual figures for the year 1949-50, as shown in the current White Paper on the National Income The total of personal incomes before tax in that year was £10,507 millions Of this, £1,460 millions cannot be assigned to incomes of any particular size I t is made up of such items as Co-operative dividends, interest on Savings Certificates, income paid in kind and not in money, the income from investments of charities, educational bodies, and insurance companies, the part of employees' incomes that is deducted before assessment for income tax (e g , national insurance contributions), and a few other items 10

If we leave aside this £1,460 millions there remains a total of £9,047 millions of personal incomes before tax Out of this, £5,755 millions went to persons with less than £500 a year, and a further £1,614 millions to persons with from £500 to £1,000 Thus, the total received by persons with more than £1,000 gross was £1,678 millions, which was shared between 775,000 recipients If these persons each kept £1,000 gross, and no more, there would be a total sum of £903 millions gross which could apparently be re-distributed to the less wealthy But out of the £1,678 millions the State was already taking £659 millions in income tax and surtax, leaving £1,019 millions in the hands of the original recipients If they were allowed to keep an average of no more than £750 a year net, the total sum remaining for re-distribution would amount to no more than £438 millions, or roughly 7½ per cent of the total of net incomes under £500 May I repeat that the inadequacy of this sum to make a really considerable contribution towards raising the smaller incomes, if it were spread evenly over them all, is no good reason against taxing large incomes generally, or large incomes derived from ownership of property, at a very high rate I have given the figures, not by way of objection to such taxation, but simply in order to show how little what the most drastic measures of income redistribution could do towards preventing re-armament from involving a fall in the general standard of living Who Should Own Reserved Profits? SAVE TO THE extent necessary for making this plain, I have no intention in this short pamphlet of embarking on any discussion about what can or should be done, either by further taxation of profits or incomes, or by other means, to bring about a nearer approach to economic equality Nor do I propose to discuss the wider question of what can or should be done to prevent excess spending out of capital, or to reduce inequalities of ownership That is another subject, on which my friend, Roy Jenkins, has recently written an excellent Tribune pamphlet It would, I think, be quite practicable to devise ways and means of transferring a part of the reserved profits which are piling up in capitalist hands to working-class ownership, provided that the workers saved and did not spend on current consumption the amounts thus placed to their credit But it would not be possible to give them more than a little out of current profits to spend on consumption, because any such increased spending would come immediately up against the absolute shortage of consumers' goods Apart from increased total production, the supply of consumers' goods could not be increased without taking away man-power and other resources that are either needed for making capital goods or destined for use in re-armament Housing and Education IT WOULD, OF course, be possible to increase somewhat the supplies of some kinds of consumers' goods at the expense of others of a more durable kind I t would be possible to stop building houses, schools and hospitals, and 11

to transfer the man-power and resources employed in these branches of production to re-armament activities, and thus to lessen the need to draw man-power and other resources out of other industries supplying civilian needs But to do this would be only to accept a fall in living standards in an alternative form The consumers need more houses, schools and hospitals as much as they need the consumers' goods they could get instead or rather, it is a question of striking a right balance in deciding of what kinds of goods and services we are to go short if re-armament is to be carried through on the projected scale Rightly, I think, the Government has decided not to cut the housing programme, but for how long it will be able to maintain it in face of the increasing demands of re-armament I do not profess to know The Long-run Outlook I N D E E D , THE WORST thing t h a t confronts us in relation to the armaments programme is not its immediate size, though t h a t is bad enough, but the prospect of its continuance on an ever-increasing scale Assuming increased armaments to be desirable, we could bear a demand to tighten our belts for a short period if we could count on the emergency ending fairly soon and the resources locked up in armament-making being speedily released for other uses But that is very far from being the nature of the demand that is now being made upon us If American policy remains as it appears to be, and if we continue to follow it, we are faced with a continuance for an indefinite period to come of a division of the world into two vast armed camps, each wildly spending against the other in the supposed interest of its own security I t is in the very nature of such armament races to involve continually rising costs, as deadlier and more expensive weapons are introduced and as the rate of obsolescence of weapons of destruction grows continually more rapid The burden we are committed to bearing over the next three years is heavy enough , but it is nothing to what we are likely soon to be called on to bear unless we can stop the cold war Obsolescence and the Arms Race T H I S POINT ABOUT obsolescence is of fundamental importance The pace of technical advance in the production of munitions of war has now become fantastically swift Armaments now not only cost immensely more to make than they ever did, but also become out-of-date very much faster so t h a t the total burden is increased by much more than the rise in the cost of each unit This is a much less deterrent consideration to the United States than to Great Britain, both because American industry is used to a high rate of obsolescence and because American national resources are so much greater than ours The Americans can afford to expand their armaments at a great rate, not, of course, without adverse effects on their consuming power, but mainly by slowing down the increase of supplies for consumers rather than by 12

actually reducing their standards of living We, on the other hand, not only need all our productive power if we are to make even modest improvements in general living standards, but are also badly in arrears with the maintenance and modernisation of our industrial structure We can very ill afford to cut down either supplies of consumers' goods or the amount of resources devoted to capital development. The Position of the Soviet Union I N THIS RESPECT the Soviet Union's position is much more like ours than it is like that of the United States , for despite all the advances of recent years the Soviet Union is still a very poor country and requires to make provision for the needs of a rapidly increasing population It is disastrous for the people of the Soviet Union to be spending a large part of their productive resources on armaments, and to be facing an indefinite continuance of the arms race I do not wish, in this pamphlet, to embark on any discussion of foreign policy I am trying to keep strictly to the economic facts But it is surely evident that the peace propaganda of the Soviet Union and the support given to it are not wholly a sham, and that the Soviet peoples have an interest fully as strong as ours in halting the arms race in the interests of their standards of life Mutual suspicions, and the conflict of Communist and capitalist philosophies, make it exceedingly difficult to persuade the ruling groups in either the Soviet Union or the United States that in arming madly against each other they are doing anything other than each is forced to do by the attitude and policy of its antagonist. But we in Great Britain, and with us the peoples of Western Europe, have nothing to gain by war and have the strongest reasons for knowing both that if it comes it is likely to be utterly disastrous for us, whichever side wins, and that a prolonged condition of near-war will wear us out long before it has exhausted either the Americans with their vast productive power or the Russians with their immense capacity for enduring hardship I am quite unable to believe that either the American people or the people of the Soviet Union want war, or would willingly resort to it unless they had been induced to believe that there was no other way open to them of defending their several ways of life Will Re-armament make us Stronger ?

We in Great Britain and our neighbours in Western Europe have even stronger motives for the preservation of peace , for it is clear to most of us that war, far from enabling us to defend our ways of life, would be fatal to them. If intensive re-armament were in very truth the best means open to us of avoiding war, we should be right to meet the cost of it, whatever the economic effects. But we 13

need to be very sure of this to be justified in throwing away the gains in real income and in social security which by an intense effort we have made in recent years for the main body of our peoples Are we so sure ? May it not be that the social discontents which will be created by the economic upsets of re-armament will leave us not stronger but weaker in facing the perils of a divided world, from whatever quarter they come ? If armies march on their bellies, so do whole peoples. A weakened economy, rent by internal dissensions, can be in no good case either for preventing a war or for fighting one APPENDIX ESTIMATED N A T I O N A L EXPENDITURE, 1950 A N D 1951-2 (£ MILLIONS) DEFENCE SERVICES Army Navy Air Supply Ministry of Defence Civil Defence Strategic Reserves Margin for Supplementary Estimates

OTHER SERVICES National Services (Health, Insurance, Pensions) National Assistance to Local Services Food Services Agriculture, Forestry and Fisheries Development Services Other Services and Expenses

1950-1* 309 190 225 49 4 7

I95l-2† 419 278 329 82 6 13 143 160

784

1,430

1950-1† 756 459 400 67 513 501

195l-2† 776 474 403 57 581 522

2,696 *Exchequer Issues

2,813

†Budget Estimates

CURRENT TOTAL £4,243,000,000, of which Defence accounts for more than a third. 14

expenditure

DISTRIBUTION

O F P E R S O N A L I N C O M E S , 1949

Under £250 £250—£499 £500—£999 £1,000—£1,999 £2,000—£9,999 Over £10,000

Before Direct Tax £ Millions

After Direct Tax £ Millions

2,209 3,546

1,614 728

760 190

2,185 3,360 1,375 539 436 44

9.047

7,939

Number of Recipients Thousands ?

10,310 2,443 545 219 II

Excluding £1,460 millions unallocated. See page 10. T H E C O U R S E O F PRICES (1938=100) A.—British Wholesale Prices (Board of Trade) March 1949

Sept. 1949

March 1950

Sept. 1950

March 1951

(a) Mainly Home produced Coal

245

248

248

246

270

Iron and Steel

171

185

185

188

199

Chemicals

203

199

208

227

246

285

254

291

403

478

Cotton

373

385

441

491

641

Wool

293

290

390

639

1,070

(b) Mainly Imported Non-ferrous Metals

B.—World Prices (The Economist)

Rubber (d. per lb.) Wool 56's (d. per lb.) Lead (soft pig) (£ per ton) Copper, electrolytic (£ per ton) Tin, London (£ per ton) Aluminium scrap sheets (£ per ton) Antimony 99% (£ per ton) Tungsten (sh. per unit) 15

June 1950

End of March 1951

24 81 88 186 607¾ 8¾ 160 127

62¾ 277 136 202 1,255 16 360 550

THE FABIAN SOCIETY

PAST

and

PRESENT

{REVISED EDITION)

BY

G. D. H, COLE

TRACT

SERIES No. 258

D

6

Fabian Publications Ltd, I I , Dartmouth Street, London, S„W.I

CONTENTS 1 FABIAN FUNCTIONS Practical Proposals "Permeation" 2 WHO THE FABIANS ARE Fabian Standards Are the Fabians Middle Class ?

Page 3 3 5 6

3 WHAT THE FABIANS ARE DOING Publications Research

9 10

4 FABIANISM AND POLITICS Fabians and the Labour Party Policy Making Local Societies and Socialist Propaganda Committee

12 13 14

5 FABIAN HISTORY AND FABIAN FUTURE A Word to Fabians

17

NOTE This pamphlet, like all publications of the Fabian Society, represents not the collective view of the Society, but only the view of the individual who prepared it. The responsibility of the Fabian Society is limited to approving the publications which it issues as embodying facts and opinions worthy of consideration within the Labour Movement. It is the aim of the Society Jo encourage among socialists a high standard of free and independent research. {Revised Edition, June, 1946)

THE FABIAN SOCIETY Past and Present by G. D. H. COLE The Fabian Society, in the words of its Constitution, " consists of Socialists ". The same fundamental rule, to which all its members must subscribe, goes on to define this phrase by saying that the Fabian Society " therefore aims at the establishment of a society in which equality of opportunity will be assured and the economic power and privileges of individuals and classes abolished through the collective ownership and democratic control of the economic resources of the community ". The rule adds that " it seeks to secure these ends by the methods of political democracy ". That, together with a profession of faith in equal citizenship open to persons " irrespective of sex, race or creed ", is the whole basis of belief to which those who wish to join the Fabian Society are asked to subscribe. The words have been changed from time to time during the long life of the Society, but for some time past they appear to have given so much satisfaction that no one has even tried to alter or to enlarge upon them. The Fabian Society was founded in 1884. Throughout more than sixty years it has done its best to keep the conditions of membership wide enough to admit a large diversity of views. It insists on Socialism, and does its best to define Socialism in the broadest possible terms. In all other matters of faith and doctrine, it prefers to leave its members free. There is no Fabian ' orthodoxy' on matters of controversy within the Socialist movement, save to the extent to which the brief statements quoted above are regarded as controversial. Up to a point, no doubt, they can be so regarded. They would exclude an anarchist, or anyone who does not believe in political democracy. But of genuine Socialists they are meant to exclude as few as possible. The Fabian Society is not a sect: within the limits set by its affiliation to the Labour Party, which it helped to found, it is open to all democratic Socialists. The Fabian Society was named, more than half a century ago, after a certain Roman general, Quintus Fabius Maximus Cunctator—which means ' the Delayer'. This may appear an odd way of naming a Society which has stood throughout its existence for Socialism, and has become famous throughout the world as a planner of Socialist policies and an inspirer of Socialist ideas. For, by and large, most people tend to think of Socialists rather as rushing in where more timorous angels fear to tread than as biding their time, as Fabius did against Hannibal, from whom he saved Rome. I doubt if anyone, founding a Socialist Society nowadays, would think of calling it ' Fabian'. The name is a bit of history it derives from the state of the British Socialist movement nearly sixty years ago. Let me remind you. In 1884, when the Fabian Society was born, there was no Labour Party in Great Britain. The beginning of the Labour Party was sixteen years ahead, and nine years were to pass before Keir Hardie founded its forerunner, the I L P. The only pebbles on the British Socialist beach in the Society's early days were Hyndman's Social Democratic Federation and William Morris's Socialist League, which shortly after the birth of Fabianism split off from the S D F ; and both these

2

THE FABIAN SOCIETY

bodies, though they did good work for Socialism in their day and generation, were adepts at ' rushing in'. In the same year the S D F rushed into the General Election to such purpose that two of its three candidates scored respectively 27 votes against 4,695 and 32 votes against 6,342. Such miserable polls, to say nothing of other circumstances, discredited the Socialist cause, and it was one object of the Fabians to call a halt to such tactics and to set on foot a campaign of Socialist education that would prevent similar fiascos for the future. The Fabian Society set out to spread a knowledge of Socialism; and its propaganda played no small part in preparing the way for the wider successes of the I L P and for the coming of the Labour Party and its adoption of a broadly Socialist creed.

1 Fabian Functions The early Fabians, though they favoured ' delay ' in Parliamentary action until Socialism had acquired a substantial following, were under no illusion that delay by itself could win the day. They invented for themselves quite soon a motto. It was " For the right moment you must wait, as Fabius did, but when the right moment comes you must strike hard, or your waiting will have been vain and fruitless" That is the attitude to which the Fabian Society has remained constant throughout its history. Between times, it has gone ahead steadily and quietly with its work of Socialist education, sending out speakers, issuing tracts, pamphlets, books and manifestos, patiently devising policies for anyone who would listen to it—and for many who would not listen. But whenever there has come a crisis in the affairs of men, the Fabian Society has been ready to throw aside its delaying tactics and to take its stand boldly for what it has believed to be the right course of action. Sometimes this attitude has involved the Society in a great deal of self-denial. In its early years it built up a network of local Fabian Societies over Great Britain. But in 1893, when the I L P was founded, it seemed best in the interests of Socialism to consolidate the available forces in the constituencies under its banner; and the parent Fabian Society readily acquiesced in the absorption of most of the local Fabian Societies into the I L P. During the years after 1906, when there was a great ferment of labour unrest and Socialist thought in Great Britain, a second crop of local Fabian Societies grew up, but again the parent Society readily let most of them merge themselves into the re-organised Labour Party of 1918, when local Labour Parties with individual members were first set up throughout the country. During the last few years there has been a third crop, larger than either of the others, of local Fabian Societies and Socialist Propaganda Committees under Fabian auspices, to fill the void left by the secession and practical disappearance of the I L P. There is always need, side by side with the Labour Party, and in close connection with it, for a body which can devote itself primarily to thinking about the longrun problems of Socialist policy, rather than about immediate election issues and electoral problems; and this need exists, not only centrally, but also up and down the country, wherever there are groups of Socialists who can help both themselves and the Labour Movement by keeping their ideas and knowledge continually up to date, and by fitting themselves to play the part of Socialist educators and propagandists in the places where they live and work., At one time these functions were performed largely by the I L P . to-day, the Fabian Society is the only body which is setting out to perform them. Its success is attested by the rapid growth of local

THE FABIAN SOCIETY

3

Fabian Societies in recent years, and by the close contacts which these Societies have established with the wider Labour Movement in their areas. This third crop of local Fabian activity is developing splendidly just now; and I hope and believe it will continue to grow. Yet if, at any time, it appeared to be in the interests of the Labour Movement as a whole for any particular local Society to merge itself in some other body, the parent Fabian Society would be no more disposed to stand in the way than it has shown itself in the past It has no desire to create local Societies for its own aggrandisement it values them for what they do, not for the Fabian Society, but for the Socialist cause. PRACTICAL PROPOSALS The truth is that the Fabian Society has always believed its mission to lie more in ideas than in organisation. Throughout its long life it has always, in greater or less degree, combined three functions. It has tried to think out practical proposals for the reformation of particular political, social and economic evils along broadly Socialist lines, and to enlist, in support of its particular schemes, those who have been in key positions for helping to carry them out and have not had their ears stopped by vested interest to the appeal of reason, and it has tried to make plain to ordinary people who are intelligent enough to care about the possibilities of a better social system the necessity of Socialism, and the best means of achieving it. All these things it has done to such extent as its resources have allowed, at various stages in its history. For example—before there was a Labour Party in existence Fabians, largely under the, inspiration of Sidney Webb, had a good deal to do with persuading the Liberal Party to adopt a more advanced programme of social reform—the Newcastle Programme of 1898. It was again Sidney Webb who drafted, in 1918, the first comprehensive programme ever put forward by the Labour Party— Labour and the New Social Order Persons who had been converted by Fabian propaganda were largely responsible for the social legislation passed by the Liberal Government after 1906—until Lloyd George, instead of acting on the Fabian-inspired proposals of the Minority Report of the Poor Law Commission, again the work of the Webbs, sent the Liberals haring off after social insurance on the German model. At all times, Fabian lecturers and writers have been busy, as they were busy in the midst of war, telling people about Socialism in terms which bring it flown from generalities to concrete practicable proposals. It is the Fabian view that the " good news' of Socialism needs putting squarely and realistically before everyone, in every class and group, who can be persuaded to listen to it. " PERMEATION " The second Fabian method, that of trying to convert those who hold the key positions, was called in the Society's early days by the name of ' Permeation', and a good deal of mud was slung at the Society for trying to talk commonsense to anyone who had ears to hear instead of spending all its time speaking comfortable words to those who had been converted already. Naturally, the Fabian Society expected its ideas to get the warmest welcome from those who were already Socialists, and especially from the livelier elements in the working-class movement. But it saw no reason for confining its efforts to those who were easiest to persuade. Not that Fabian ' permeation' ever really meant simply the conversion of a few leading officials or ' high-ups'. Far from it. The

4

THE FABIAN SOCIETY

person whom the Fabian Society, on this side of its work, most wishes to convert is the man or woman who is in the best position for influencing others, either over a wide area or in his or her comparatively narrow group. Such persons may be Civil Servants or professional men and women or Trade Union or Co-operative leaders, local as well as national, or parsons with a loyal following in their own churches, or speakers with a gift for moving men, or regimental officers or common soldiers, or shop stewards. They may be business men who have realised the futility of capitalism, or scientists, or teachers in school or university—or students. They may, in effect, be anybody who is a real living person, trying to think for himself and not content to be merely a passive recipient of mass-propaganda or a feebly acquiescent victim of things as they are. The Fabian Society regards each individual in its relatively tiny membership of a few thousands as a stone thrown into a pool, spreading rings of influence all round him.

2 Who The Fabians Are The Fabian membership has always been small, not because the Society wants it to be small, but because reasoning has, and probably always will have, a limited appeal. The Fabian Society's essential appeal is to certain particular kinds of people, and not to all and sundry. It wants, of course, to influence as many people as it possibly can, and it has been, throughout its long history, an agent in converting to Socialism, directly or indirectly, very many times as many persons as have joined it. But it does not expect more than a small fraction of those to whom it appeals actually to join its ranks, or at any rate the ranks of the parent Society. Of course, the more who do join it the better it is pleased, and it seeks to enrol in its local Societies and groups many more than are likely to become national members of the parent body. This is partly because the effectiveness of its work depends on supplying its members with a great deal of literature, itself the product of a great deal of careful research. Such a service cannot be financed, even with the aid of some large ponations, without a rate of subscription that is bound to seem high to those who are used to small weekly payments The parent Fabian Society cannot afford weekly collections from a membership scattered all over the country. It has to collect an annual sum from each member, and this in practice limits its membership. In fact, a guinea a year is not much more than fourpence a1week; but it is apt to seem much more, when it is asked for as a lump sum. Moreover, our smaller subscribers contribute little or nothing to the general expenses of the Society • they get back from it most of what they pay in the actual expenses of supplying them with literature and keeping them in touch with the Society's work. So the parent Society has to get larger subscriptions from all who can afford to pay them—and of course a good deal more from some of its members, or it could not go on at all. The local Fabian Societies do not suffer under this particular handicap, and can therefore aim at a wider membership. But, even in their case, there are reasons why the Fabian membership is likely not to become large, in comparison with that of other political bodies seeking to exert a widespread influence. Although of late the Fabian Society has been growing fast, and though it looks like growing faster still, it will never, in the nature of things, become a mass-movement. 1

The Fabian Society's minimum national subscription is only 10/6 , but all members who can possibly afford it are asked to pay at least one guinea a year, and there is a large class of two-guinea subscribers, besides those who contribute larger sums.

THE FABIAN SOCIETY

5

It does not aim at mass-conversions or at mass emotional appeals. While recognising their political necessity and value, it leaves them to others, within whose province they he. Mass-appeal is a different art from research and education; and the Fabian Society prefers to get on with its own different job, which is to put the right equipment of ideas and information into the possession of that not inconsiderable body of persons (some hundreds of thousands at the least, if they could all be reached) who believe in the value of getting at the real facts and thinking hard about them, and are aware that, even if politics depend fundamentally on men's emotions, emotional appeals by themselves will not get far in practice, unless clear thinking comes to their aid when it is a question of translating desires and ideals into positive achievements. This type of clear thinking is not a monopoly of any class of specialists, or of those who have received the benefit of any particular kind of education. Men and women who are prepared to use their brains for thinking lucidly about politics are found in all classes; and in all classes they are at present the exceptions. It is much easier for the educated as well as for the uneducated man, in the ordinary sense of the words, to live by the rule of prejudice and tradition than to think things out in an objective way. Indeed, in this respect the highly educated are often among the worst offenders, both because they are blinded by social prejudice and because, even when they are not, they are very apt to think unrealistically, and with much too little understanding of the wants and sentiments of ordinary people. Those who have missed the chance of higher education often offend also against the rule of reason, and with much better excuse. The educated obscurantist turns his back on the truth, because it offends his prejudices or seems to involve knowing things too mean for his mind. The uneducated man, on the other hand, is apt to be unable to get his aspirations into a shape in which they are realisable, and consequently tends to flounder about in generalities. The Fabian Society consists, to a quite remarkable extent, of reasonable people—by which I mean people who believe in using their reason and in not allowing themselves to be the victims either of prejudice or of intellectual dilettantism or of muddled good-will. It is bound to make fairly high demands of its members in these respects in order to be true to its essential function. Not, of course, that it requires that all its members shall be original thinkers, or exceptionally able persons. What it demands of them is not exceptional ability, but a kind of intellectual courage which will not let them run away from the facts of contemporary society, whether it likes them or not. It calls, not for high educational attainments, but for a positive state of mind which refuses to be satisfied with phrases or to take things for granted, and insists on having everything carefully examined again and again, in order to find out whether what once held good holds good still, and to seek new ways of dealing with changing situations instead of trying to meet them by the application of ancient formulae that no longer fit the facts. FABIAN STANDARDS This means that the Fabian Society has, within the limits imposed by its resources, to set itself a high standard in both research and the propaganda which it bases on its research. It is appealing to people who know, whether about the hewing of coal or the drafting of forms; it cannot afford to be ignorant or silly. Nor, as it believes in reason and the use of reason in argument, is it prepared to tell lies or compound slogans which it knows to be false for the sake of producing some immediate

6

THE FABIAN SOCIETY

emotional result. It can be said with confidence that during the whole of its history the Fabian Society has steadfastly endeavoured, subject to human frailty, (1) To check and counter-check the facts contained in its publications, (2) To argue, fairly and fully, the case for any proposal which it puts forward, and not to put forward any case which it does not believe to be substantially true, merely because it would like to believe it true, or because it forms part of the recognised Socialist ' orthodoxy ' of the moment; (3) To check, by consultation with those who know, the practicability, under existing conditions, of any proposals which it makes—I e., not to be visionary or foolish. These three ambitions may sound modest. But they are not particularly easy to work out in practice. They involve a fairly high standard of accuracy and competence in work, and sometimes a measure of selfabnegation, which the Society has often in fact employed, in withholding from the public work which has seemed to it to fall short of the standard it tries to keep. ARE THE FABIANS MIDDLE-CLASS ? A society which takes this line inevitably, as matters stand to-day, has to face two sorts of misrepresentation. It will be attacked by some working-class people as being 'middle-class' and by some people, including members of all classes, as being a home of the ' long-haired intelligentsia '. Let me deal first with the second line of attack So far from attracting what are called the ' Bloomsburyites ', the Fabian Society definitely repels them by its practicality. It is always nosing about in the drains, and attending to all sorts of sanitary affairs that have no romance about them in the eyes of the intellectual revolutionary remote from the realities of working-class life. The ' Bloomsburyites' do not join the Fabian Society: they prefer as a rule something much more exciting and a good deal less solid. I ought perhaps to apologise at this point for seeming to insult the inhabitants of Bloomsbury who do happen to belong to the Fabian Society; but they will readily understand that there are two Bloomsburys, one a district of London including the British Museum and the other a Cloudcuckooland which has somehow usurped its name. The ' Bloomsburyites ' belong to this second Bloomsbury; and it is of them I say that they do not belong to the Fabian Society. The second charge—that of being middle-class—involves a more subtle misconception. It is a most curious habit of the English people to regard as belonging to the ' middle class' almost everybody who has received a higher education, even if his father is a miner or an agricultural labourer, or if he himself has hewed coal or served at the plough. The Labour movement unwaveringly demands a broad highway leading to the summit of the educational system: yet many Labour adherents regard as having dropped out of their class anyone who advances at all far along this highway. But one purpose of higher education—it should be the main purpose, though often at present it is not—is to teach people to think clearly and to be able to express their thoughts. The Fabian Society therefore is bound to have a more obvious and immediate appeal to those educated persons who are not blinded by their prejudices than to most of those who have missed the chance of higher education. Exceptional men and women—especially those who find their opportunity later, m the adult education movement, but not only they—can rise above the defects of the educational system and think clearly for themselves even though

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7

they have never been taught to think. But they are bound to be the exceptions, wherever the demands of thought are exacting and the things that need to be thought about inherently difficult or technical. It is therefore unavoidable that a society such as the Fabian Society should consist largely of members who have in one way or another become highly educated. Such members may be workmen, or salary-earners, or anything else you please. But there will be, until things change a lot, a strong propensity in certain working-class quarters to dub them ' middleclass ', merely because they are educated, whatever their jobs, or their family connections, or their opinions, or their level of income may be. In this sense only is the Fabian Society a 'middle-class' body, and not in the least ashamed of being so, but ashamed only of a social system so unfair and lop-sided as to regard education as the prerogative of a single social class. A society of educated men and women (including of course, 'selfeducated ' men and women) the Fabian Society must remain, if it is to do its work well. It must set a high standard for those who work for it, either in devising plans and policies or in spreading the results. It must remain in that sense, a society of specialists—specialists m the art of clear, courageous, Socialist thinking and planning for the future. That it is this should be its strongest recommendation in the eyes of the Labour Movement, which stands in need of just this sort of help. Whoever you are, if you want legal advice you go to a lawyer. Trade Unionists do so every day, and would be failing in their task if they did not. If you want bricks laid you go to a bricklayer. Persons who dislike and despise bricklayers do this as much as others, and would not get their houses well-built if they did not. Similarly, if the Socialist movement wants research done into social and economic problems, it has to go to the people who have trained themselves to understand these problems, or it will not get good results. This is why the Fabian Society is the organisation to which educated Socialists naturally gravitate. If it gave up this character, if it tried to turn into another sort of organisation, it would lose the capacity to do its own special Socialist job well, and it is very doubtful whether it would develop a capacity to do any other.

3 What The Fabians Are Doing At any rate that is the Fabian ' line'. Let us try to see what it means in practice—in terms of what the Fabian Society is actually doing, or attempting to do. There are now, in June, 1946, over 4,500 of us— members and Associates of the parent Fabian Society, apart from the members of our 67 local Fabian Societies scattered over the country. That, by the way, represents a remarkable rate of increase; for four years ago the main Society had only 2,070 members, and the local Societies numbered no more than 14. Moreover, our pace of growth has been limited of late, not by the numbers who are ready to join us, but by our ability to undertake the necessary work of local organisation. It would not serve our purpose to let anyone who feels like forming a local Fabian Society go ahead and form it without making as sure as we can that the Society, when it has been formed, will act in accordance with Fabian methods and the Fabian spirit. We have to keep our standards high, in local as well as in national work; and that involves care in picking our people, and seeing to it that local Societies are not started by enthusiasts who, however well-intentioned, may do the Fabian movement more harm than good.

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Lest this sound unduly deterrent, let us see what it means in terms of the kinds of people we wish to attract. A great deal of our research work needs the reinforcement of local information, and the criticism of those who are in close touch with local conditions. Suppose we are setting out to make a study of some contemporary social problems—Housing, for example, on which we have a special Committee at work—we depend absolutely on the help of our members who know the actual conditions in different parts of the country. The same thing applies to town and country planning, or health services, or education, or to any of a hundred other problems that we attempt to survey in an objective way. In such cases, we want as members the Socialists who have been active in connection with these services in their own areas, whether as Councillors or as social workers or as active participants in the local working-class movement. Nor is this help needed only for the Society's central work. We expect our local membership to be prepared to do local research and survey work that will be of help to the Labour Group on the local Council, or to the local Labour Party or Trades Council or Cooperative Society. We want to get into our ranks in each ai ea the men and women who know things because they do things; and we believe we can help them as much as they can help us. This, I hope, makes it clear what we want our local Societies to be and to- do. We want them, of course, to be propagandists for Socialism as well as research workers; but in our view the best kind of propaganda they can engage in is very often that which emerges directly from their own study of their local conditions and their success in relating it to the national policies which the Society as a whole is working out. All this, if it is to go well in the localities, puts a very big burden of work on the parent Society. If you were to visit our offices at 11 Dartmouth Street, Westminster, you would appreciate what the rapid increase in membership has involved. We have no money to spare for expensive accommodation, for we need it all for financing our research and spreading its results. Consequently, in relation to what the Society is doing, it is ridiculously under-housed. It is also, for lack of money, seriously understaffed. Crowded into a small and inconvenient building are the general offices of the Fabian Society, the Research Department, the Library, the Publications Department, the Bookshop and Despatch Department. The very active Colonial and International Bureaux, the Indian Affairs Group, and the offices of the Local Societies Committee are across the way, crowded out of the main building. The Women's Group, and a large number of other special activities, fit themselves in where they can; and during the war we tried to provide a centre for meetings for a number of our comrades from overseas who were in exile as a result of the Nazi occupation of Europe. It is ten to one that, when you call, you will find every room fully occupied, and even have some difficulty in getting a chair. The reader may well ask how this congestion squares with what I said about the Society being understaffed. I can assure him that it does square. Although our staff is too large for our premises, it is much too small for the work we are trying to do. Moreover, as we cannot pay enough people to do even the regular office work for us, we have to supplement the services of the paid staff by using volunteers, not only for research (practically all our research work is unpaid) but also for office jobs. We can always do with more volunteers for what is called ' the donkey work ', as well as for speaking and research, though we cannot promise them either that we will have just the job ready for them that they will prefer to do or that we can give them all comfortable quarters to work in if the work needs to be done on the spot.

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PUBLICATIONS What does all this activity lead to ? In the first place, it leads to publication—of books, pamphlets, periodicals, cyclostyled memoranda, covering a wide field. Fabian News, our official organ, is essentially a newssheet of our activities, meant for members and indispensable to them, but with no room, in these days of paper shortage, to do more than announce and chronicle the crowded hours of the Society's life. Through it, we tell our members about our publications, our summer schools and week-end schools and conferences (which are always crowded out), the lunch meetmgs organised by the Society and its groups and bureaux, and as far as space allows the activities of our local societies. Fabian News does duty in place of many notices; and any member who fails to study it carefully is not doing his job. Fabian Quarterly is a journal of a different sort. In it, we publish special research articles and reports which are either too short or toospecialised to be issued in pamphlet or booklet form, but are of real, though sometimes only of temporary, importance to our members as material for their Socialist work. There, too, we record our research activities, and give room for controversies about questions on which opinion needs to be formed. But most of the product of our research appears in books or pamphlets. Our series of Fabian Tracts has now reached number 261, Dumbarton Oaks A Fabian Commentary, in which a Committee of the Society examines the proposals made for the creation of an international authority after the war. Fabian Tracts go right back to the beginning of the Society, and include the invaluable Facts for Socialists which, first issued in 1887, has, for upwards of half a century, supplied generations of propagandists with good ammunition for shooting at the enemies of our cause. Side by side with the Tracts we have our younger Research Series, each dealing with a special problem from a practical Socialist angle. Recent examples of these are No. 109, European Transport The Way to Unity and No. 110, The Rate for the Job. This Research Series is meant to be solidly constructive, and needs more than cursory reading, though it is simply and straightforwardly written. It is intended for readers who want the hard facts as well as the conclusions, in order that they may be well equipped for arguing the Socialist case. Where we can, we produce the results of our research in the form of pamphlets, so as to keep them cheap. But some things that need saying cannot be said in a pamphlet, and need full-length presentation in book-form. We believe that the books in which we embody many of the major results of our research are among our most important products and that we have succeeded in keeping their quality high. Among our latest books are Towards a Socialist Agriculture, a study of Cooperation in the Colonies, and The Condition of the British People, 1911-1945, by Mark Abrams—all mines of information for anyone who wants to study the particular subjects with which they deal. Yet another of our ventures is a series of booklets and pamphlets called 'Fabian Specials'. This series is definitely meant to be more popularly written than the others It includes purely occasional pamphlets arising out of some contemporary event or controversy, on which it seems. desirable to express a Fabian point of view, or, to put concise, clearly written information into the hands of the public. In this series we also publish special propagandist appeals, such as our series of Letters to a Soldier, A Teacher, an Industrial Manager, and so on. Among the most popular ' Fabian Specials' have been How the Russians Live and Beveridge Quiz, and we are specially anxious to find better methods of distributing

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these pamphlets through the Labour Movement, which is in these days seriously short of well-written popular publications. Then we have another journal—Empire, the organ of our exceedingly successful Colonial Bureau, which exists to focus Socialist opinion on problems of empire and of colonial development and exploitation; and right through the war we issued France and Britain, which was founded to help in building up a community of sentiment and idea between two neighbouring countries whose close mutual understanding is indispensable for the future settlement of Europe. It was issued by our International Bureau, which is seeking to establish co-operation over a much wider field and has committees for joint action between British Socialists and those of a number of countries. RESEARCH Parallel to this activity in international matters is the work we are doing on home affairs through our Home Research Department, which is the pivot on which the whole of our work in home affairs is meant to turn. Until a few years ago the New Fabian Research Bureau was an independent body, working in friendship with the Fabian Society, but apart from it. The New Fabian Research Bureau was founded in 1931, during the period of office of the second Labour Government, and as the result of a good deal of preparatory work during the preceding years. Its founders, who included, besides many of those now in leading positions in the Society, such men as Attlee, Cripps, Dalton, Arthur Henderson, Bevin and Pritt— a good mixed bag—felt the urgent need in the Socialist movement for a new organ of collective thinking and planning for a better social order. So they set to work, and ever since 1931 the results of their efforts have been flowing forth in a steady stream of constructive research. Originally, there was associated with the New Fabian Research Bureau a parallel body designed to conduct propaganda based upon its research. But this body— the Society for Socialist Inquiry and Propaganda—did not survive; and for some time the effectiveness of the N F R B was limited by its lack of adequate local contacts. Then, in 1939, the N F R B and the Fabian Society were fused into a single body, and the gain to both has been immense. The research work thereafter reached directly a wider membership, and was thus passed on more effectively to others, and the Fabian Summer School, the lecturing work, and the other activities of the older Society got a freshness and a more solid content which greatly increased their influence. Moreover, whereas the Fabian Society had lost most of its local Societies, and N F R B had founded only a very few local Research Groups, the combined body has been able to go forward with a new drive for local contacts; and the place which S S I P was meant to fill is being taken by the new Societies and Groups which are being formed under the auspices of the Local Societies and Socialist Propaganda Committee. The Research work now undertaken by the Society covers a wide range. As our financial resources are scanty—terribly scanty in relation to the tasks we are called upon to undertake—it has nearly all to be done by our members in thir spare time, and on a voluntary basis. We have no rule about its organisation. A matter needing research goes sometimes to a committee of the Society, and sometimes to a single member; but in either case, when it is done, it undergoes a fire of criticism from readers appointed by the Executive. Our instructions to our readers are simple. They are asked so say, not whether they agree with what has been written, but only whether the job has been competently done from

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a definitely Socialist point of view. I have said earlier that, within our general profession of Socialist faith, we as a Fabian Society have no rigid orthodoxy. We believe in free Socialist inquiry, and in publishing the results of such inquiry whether we agree with them or not. None of our pubhcations represent the views of the Fabian Society as such; for, beyond the general declaration of Socialist faith embodied in the rules, which I quoted at the beginning, the Fabian Society has no collective views on particular questions. There is no Fabian 'party line'—no more than a common determination to work for Socialism and democracy on a broad basis of agreement which is rather implicit in the entire record of the Society than set down anywhere in so many words. The Society wants this to be clearly understood—for it is very easy to misunderstand. Most Socialist bodies have Annual Conferences at which they decide upon then* policies, which are thereafter supposed to be binding on then: members. The Fabian Society's annual gathering is a business meeting, which does not, save quite exceptionally, deal at all with questions of policy in the ordinary sense. It is not precluded from dealing with them; for it is always open to the members, at the annual meeting, to criticise the Society's pubhcations or its conduct of the Society's policy during the year. But in practice this hardly ever happens. The Executive may be criticised for not having done more than it has done, or for having tackled some problem of Socialist research in the wrong way; but it is hardly ever confronted with any proposal to pin down its activities to a definite line. This is because our principle of fostering free Socialist research and publishing the results without attempting to reach detailed agreement is understood and valued by our members.

4 Fabianism And Politics

There are two reasons why the Fabian Society attaches particular importance to preserving this undogmatic attitude. We believe there is need, somewhere in the Socialist movement, for a body which is entirely free to think out and to give publicity to new ideas, even where they run counter to Socialist orthodoxies inherited from the past. Socialism is not a set of fixed dogmas, always ready to be applied irrespective of time and place. It is a set of principles, which need continual re-interpretation in the light of changing needs and conditions. There is always a danger of mistaking dogmas for principles, and of allowing policies and programmes to become ossified; and this danger can be held off only by continual fresh thinking of an essentially objective sort. A political party can never be quite free to do this, because it has to act solidly m support of a united policy m order to achieve its ends. But the Fabian Society is not a political party, and its object is to influence others rather than to carry out its ideas in practice. It is organised for thought and discussion, and not for electoral action, which it leaves to other bodies, though it encourages its members, in thir individual capacities, to play an active part in the work of these other bodies. It counts among its members a great many leading members of Local Labour Parties, Trade Unions, Co-operative Societies, and other working-class agencies; a large number of Labour Members of Parliament and of Labour representatives on municipal and other local authorities, and it expects all its members to take an active part in the political work of the Socialist movement, in then- several spheres. But as a Society it keeps itself apart from electoral affairs, and values its freedom from the day-to-day exigencies

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of party politics. Thought must be free if it is to remain alive; and thinking about politics and economics is the Fabian Society's special job. The second reason is closely connected with the first. The chief body of opinion which the Fabian Society seeks to influence is the Labour movement. But it would be entirely fatal to our prospects if we, as a body of people who specialise in plans and ideas, were to produce a programme of our own, separate from and in rivalry with the accepted programmes of the Labour Party and the Trade Unions, and were we to attempt to force our programme down the throats of the millions whose lives it would vitally effect. It is legitimate and necessary for the Fabian Society continually to throw out ideas and suggestions for notice by those who have the task of formulating the official programmes, and to hope that these ideas and suggestions will influence official policy. But our chance of exertmg this constructive influence would be gone if we appeared to be pushing our own programme against the official programmes. That is precisely what has happened to other Socialist bodies which have tried to act in this way. The I L P and the Socialist League in turn got the reputation of trying to force their own particular medicines down the throats of the Labour Party and the Trade Unions. Many of the leaders of these bodies thereupon refused to have anything to do with them, and denounced them as bodies of irresponsible persons who were trying to teach their grandmothers to suck eggs. It does not matter, for the present purpose, whether the policies advocated by the I L P and the Socialist League were right or wrong. Personally, I hold that they were largely right. The point is that they were put forward in such a way that there was no chance of their being listened to, and that any fool who got up and denounced them as the work of a bunch of superior intellectual idiots was certain of rapturous applause. The Fabian Society does not mean to fall into that error. It is not trying to push anything down anybody's throat. It simply researches and thinks, publishes the results of its thinking in speech and writing—and hopes for the best. It trusts to the wisdom of the common people to ensure that what it does well will in course of time pass into the general stock of Socialist ideas and policy, and that what it does badly will be set aside.

FABIANS AND THE LABOUR PARTY That has been the Fabian way ever since it helped to found the Labour Party more than forty-six years ago. All that time the Fabian Society has been affiliated to the Labour Party, and has never quarrelled with it, even if again and again many Fabians have disapproved of something the party has done. We have watched other Socialist bodies break their heads against a brick wall, and knock their brains out in the process. We, as a Society, have sat tight, leaving our individual members to make the running in support of this or that idea through the local Labour Parties or other bodies to which they belong, but refusing to commit the Society collectively on any internal quarrel—jealously guarding our independence of thought and seeing to it that our identity as a Socialist body is maintained. For though we are affiliated to the Labour Party and working in loyalty to it, let it be clearly understood that the Fabian Society is not simply a part of the Labour Party, but an independent body of persons organised for furthering the Socialist cause. It is of vital importance that both our numbers and others who have dealings with us shall understand this difference. We cannot as a Society be simply a part of the Labour Party, because Socialism is not simply a political question. Socialism is a theory and a way of life: it is what some-

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people call a religion and others an ethical creed. It involves political action for achieving many of its ends; and for this purpose there is need of a political party committed to a Socialist programme. But Socialism involves much besides this—much that is not ' politics' in any ordinary sense. The Fabian Society, when it wishes to act politically, acts as a part of the Labour Party. But this is not all it does, and in view of its special character, its non-political work is fully as important as that part of its work which falls within the field of politics. For example, the Fabian Society has among its members a good sprinkling of men and women from many different professions—doctors, teachers, industrial managers and technicians, and so on. It wants all these persons to face as Socialists the special problems of then* own professions, and to work out, not merely how these professions ought to be orgamsed in a Socialist Society, but what can be done in them now both to improve the immediate quality of their service to the community, and to lead on towards then: reorganisation on sounder lines. What Fabians are trying to do in these spheres of action is hardly politics at all—certainly not ' party politics', but it is of immense importance for creating in the key positions of Society the states of mind and preparation that will make Socialism work, if and when the politicians succeed in establishing it. Nor is it of less importance in the immediate cause of human happiness and decency under the existing order; for every doctor, or industrial manager or teacher who becomes a convert to Fabian Socialism is one more man or woman holding a key position who appreciates that his job is to work in terms of fellowship and social equality with others, irrespective of class or status, for improving the quality of human life. POLICY-MAKING A few examples of what the Society is doing in these fields of action will serve to illustrate what I mean. We try from time to time to get together those of our members who hold positions as managers or technicians in industrial concerns for the discussion of the forms of management and control of industry that need to be established m a democratic society. We try to get them to understand the claims of the Trade Unions and our Trade Union members to realise the importance of the problems of technical management and administration. In this way we do what we can to build a bridge between the workers ' by hand and brain' for the essential tasks of Socialist construction. Again, on the economic side, we have a group of members busy studying the forms of State control in industry and commerce, in order to find out how the systems of control need to be changed and developed in order to fit in with the requirements of Socialist planning. On the social side, we had a group which did excellent work on the problems of Social Security in preparation for the Social Insurance Act of 1946. This group gave important evidence to the Bevendge Committee, and subsequently brought out a comprehensive book on the reconstruction of the social services as a whole. We have had a similar group working on population problems, which has produced an admirable report, presented in thefirstinstance to the official Commission that was studying the subject; and our Economic Committee covers a wide range of important contemporary issues, such as the problems involved in the acceptance of a policy of Full Employment. Our Women's Group has made a special study of the problems of women's employment, also in connection with an official inquiry; and another group has been at work on the question of the future organisation of the B B C. These are only a few instances of what the Society is doing to enlist the help

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of the many specialists who are among its members, and to ensure that Socialists who have expert knowledge are given every opportunity of putting their wisdom and experience at the disposal of the whole Labour movement. We of the Fabian Society wish most heartily that we could do more than we are doing in these fields—especially in these days when Labour is in power, and there is so much needing to be done. Both in wartime and since the war ended it has been exceptionally hard to get people together; and we, like other societies, have been badly hampered, first by blackout, evacuation and difficulties of travel, and latterly by the much harder work that most of our members have been doing since the General Election of 1945. For we have now a large Fabian contingent in the House of Commons; and many other Fabians have been engulfed in one form of public service or another, so as to have all too little time left for the Society's calls upon them. If, in spite of all these difficulties, the Society's activities are to-day greater and more varied than they have ever been, that is no reason for our feeling satisfied, for the times have aroused in many more men and women a readiness to respond to the Socialist appeal and to perform prodigies of energy beyond what they would have deemed possible in normal times. We have to recognise that we have touched only a tiny fraction of those who would be ready to help us if we could get near to them and explain to them where we stand and what we want them to do. Our resources are so pitifully limited in relation to our opportunities that we are continually conscious of a dozen opportunities missed for every one that we are able to take. We can avoid this only to the extent to which our present members not only work for us, but also bring in others, and thus widen the range of what we can put in hand. The experiences of the past year or two have sufficiently shown us that the members are waiting to be made, as fast as any of us can get round to the job of making them. LOCAL SOCIETIES AND SOCIALIST PROPAGANDA COMMITTEE Especially is this the lesson of what has happened since we launched our Local Societies and Socialist Propaganda Committee. It is worth while to explain how this Committee came into being. Every year the Fabian Society runs a Summer School, which is at once a holiday in pleasant country surroundings, and an opportunity for many of our keener members from all over the country to get together and discuss then: common problems. In 1941 our Summer School met soon after the Nazi onslaught on the Soviet Union, just when the Russians were being forced back dangerously towards Moscow by the terrific weight of the German offensive. Those of us who were present were all keyed up by the sense of the war having become something new and different, and much more vital for the future of our civilisation, as a result of the German attack on Russia. We felt an intense sympathy with our Russian comrades, an immense desire to do all we could to help them, and a sense of obligation to join hands with them not only in winning the war in a military sense, but in winning it for Socialism. In this mood, we felt ashamed at the little we were doing and at the little that anybody was doing in Great Britain to bring Socialism home to the people. We compared what was being done with the work of Keir Hardie, Robert Blatchford, and other early propagandists for Socialism, and we found ourselves wanting. There arose among us, without any premeditation, the demand for a new Socialist drive; and we, as Fabians,

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could see no body other than our own Society through which that drive could be orgamsed. Tiny as our numbers and resources were in relation to the need, we determined to do what we could, and the Socialist Propaganda Committee came into being. Our original idea, in creating the new Committee, was not to push the Fabian Society, but to reanimate the propagandist activities of the Local Labour Parties and other bodies, larger than ourselves, upon which the work would most naturally have devolved. We did this where we could; but very soon, almost against our will, we found ourselves creating new Fabian Societies up and down the country. This was not because we aimed at becoming ourselves a really big body: far from it. But we found there was need, and a demand, nearly everywhere, for a nucleus of convinced Socialists who could meet together for Socialist education, and for improving their usefulness as apostles of Socialism, and who would be ready to turn their hands to any job that needed doing for the wider Labour movement in each particular place—from working up facts and policies for the Labour group on the local Council to training bands of speakers or writing letters to the local press and focusing local attention on pressing grievances and problems. The figures of the growth of local Fabian Societies during the past few years speak for themselves, and it is a plain fact that we could already have founded twice as many if we had had enough speakers and organisers to help them start.

5 Fabian History And Fabian Future This is not bad going for a Society which I have heard more than once described as being already in its second childhood. There were many who, when Sidney and Beatrice Webb and Bernard Shaw retired from active work for the Fabian Society—though not, I am glad to say, from a keen interest m its doings—prophesied that our end was near. We owe a tremendous debt to the Webbs and to Shaw for the great work they did in building the Society and keeping it lively and original for so many years; but we are not handing in our checks now that they are no longer available to give us active help. Their names will be for ever associated with what we do, and we shall be able to do it better for having their record behind us. But we do not propose to live on the legacy they have left us. We are doing our own job in our own way, honouring our fathers and our mothers, but trying to advance beyond them, as good children ought to do. Which does not mean that we are the less grateful to them for not having embarrassed us by turning into ' old fogeys' in their latter days, as so many of the pioneers have done. It has been of immense help to us that the Webbs, more than anyone else, have helped British people to understand the Soviet Union and to build the needed bridge between the older Socialism and the new. The Webbs' Soviet Communism is not our Bible; for we do not deal in Bibles. But it has helped not a little in the new renaissance of the Fabian Society during these latter years. This brings me back to saying a little more about the Fabian Society's history, of which I think we have some right to be reasonably proud. I have space to say but little about it here; but those who are interested in it will find the story told in full in Edward R. Pease's History of the Fabian Society, which can be got from the Fabian Bookshop; and a part of it is also fascinatingly presented in one of our tracts, Bernard Shaw's Early History of the Fabian Society, obtainable from the same source. We hope before long to issue a pamphlet history of the Society, which will

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bring the record up to date and include the important phase which began with the foundation of the New Fabian Research Bureau in 1931 and culminated in the amalgamation of 1939 Our Society began, in 1884, as a quite tiny group, and ' Fabianism' became a word known all the world over when there were only a few hundred Fabians. That worldwide reputation came to us chiefly after the publication of Fabian Essays, in which Sidney Webb, Bernard Shaw and the other leaders of the movement in its early days stated their essential philosophy of Socialism. Fabian Essays appeared in 1889—the year in which the present writer was born, and after so many years the book still sells. It sells because nowhere else is there written down so clear an exposition of what has been called ' English Socialism'—a conception of Socialism which fits it in with the English tradition, and shows the Socialist doctrine as the logical outcome of the Benthamite utilitarian philosophy which provided the main driving force of nineteenth-century social reform. Fabian Essays showed that it was no longer possible, in face of modern capitalist development, to pursue ' the greatest happiness of the greatest number' under the aegis of individualist liberalism. It showed that reform was bound to become sterile unless it based itself solidly on the public possession of the basic instruments of production, which were fated to become the tools of antisocial monopoly unless they were transferred from private exploitation to common ownership and control. The conception of Socialism outlined in Fabian Essays was, like Marx's, an evolutionary concept; unlike Marx's, it was conceived in times of the British tradition and admitted of ' gradualism' in that it envisaged Socialism as coming into existence by steps and stages, rather than all at once. Fabian Essays was by no means the only noteworthy product of the Society in those early days. The early Fabians, few as they were, poured forth a spate of tracts which served as valuable ammunition for the active propagandists of Keir Hardie's I L P. It was largely by the sales of these tracts and booklets that the message of Socialism was put into the hands of those who were best in a position to pass it on to the general body of the people—active local Trade Unionists and Co-operators,-progressives who were becoming more and more dissatisfied with the Liberal Party, Christians who had come to the conclusion that Christ's Kingdom needed to be realised in this world as well as the next, idealists and workers for human welfare in every field of social life. The Fabians, of course, were not the inventors of this kind of propaganda, but they raised it to a higher level and saw to it that their tracts were always good solid value for the price they cost The most successful of all these smaller Fabian publications was H G. Wells's famous tract This Misery of Boots, still one of the most effective pieces of popular Socialist exposition. It has been one of the main difficulties of the Fabian Society in these latter days that there is no longer the same zeal as there once was for selling Socialist literature. The Fabians were never in a position to spread their own publications far and wide. Their membership was much too small for that. But others did the work for them—I L P branches, local Trades Councils or Trade Union groups, and later local Labour Parties, after the Labour Party had brought into being a local political organisation of its own. But latterly there has been, mainly since the eclipse of the I L P, a sad falling off in the Labour movement's equipment for the sale of literature, and the machinery that is needed for this purpose is only now being slowly and painfully re-built. Yet how, without it, can the Labour movement hope to gain, not merely voting supporters, but wellarmed and intelligent exponents of the Socialist case Very much of the movement's shortcoming to-day is the outcome of its failure to keep

THE FABIAN SOCIETY

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this essential link in the work of propaganda in good condition; and, until this fault is remedied, even the best written advocacy of Socialism is fated to fail of its full. effect. A WORD TO FABIANS The purpose of this brief pamphlet has been twofold—to tell Socialists something about the Fabian Society, and to tell those who are attracted to it how they can serve it bes' They can serve it best by working hard for it along its own special lines and not by trying to turn it into anything other than what it is. Above all, they must avoid setting it up as a body apart from the mam stream of the Labour movement, or as in any sense a rival to the mass organisations which it exists to serve. They must preserve its character as a Society carried on mainly for research and for propaganda based on research, and they must remember always that research cannot be effective unless it is free always to seek and to confront the truth. They must not seek to set up any Fabian ' orthodoxy', or to put fetters upon one another in this quest. Always, to the best of their power, they must try to serve the wider Labour movement, and not to * come the clever' over it; and always they must be ready to sacrifice the immediate interests of the Fabian Society when that is necessary m the greater cause of Socialism. If they do that, they will be understood and liked; whereas if there is any hint about them of playing the superior person they will do nothing but harm, however excellent their mtentions may happen to be. The Fabian Society is, I feel sure, in these days a good society to belong to. It has, what so many people lack, and feel that they lack, a feeling of hope about it, and a sense of working together for a cause that is worth while. It is, you will agree if you know it from the mside, a singularly friendly and unquarrelsome society. Its members are no more agreed about everything than you can expect several thousand people who are in the habit of using their brains to be; but they are agreed in thinking the Fabian Society well worth while and in supporting its attitude of wide tolerance and frank and open discussion. They may differ; but that does not cause them to quarrel, because they have a democratic belief that out of the frank statement of their several points of view, and the discussions to which these statements give rise, the right course of action stands a good chance of emerging more clearly than it could by any other means. That is why, in a world that gives so much ground for unhappiness, we Fabians give on the whole the impression of being a happy family of plotters and planners for a better future which we feel we are really helping to bring to pass. A sense of thwartedness besets so many people nowadays that it is a real relief to get into an atmosphere of busy hopefulness and friendly working together. The Fabian Society does not feel thwarted: it is much too busy getting on with its job to suffer from cynicism or disillusionment, or to waste its time in unproductive grumbling.

NEW STATESMAN PAMPHLET

Is This Socialism? by G. D. H. COLE

1954 NEW STATESMAN AND N A T I O N in association with

THE FABIAN SOCIETY

First published July 1954 by the New Statesman & Nation Great Turnstile, London, W.C.i

PRINTED IN GREAT BRITAIN BY THE STELLAR PRESS LTD UNION STREET, BARNET HERTFORDSHIRE

FOREWORD I HAD better begin by explaining as clearly as I can what this pamphlet is, and is not, about. It is about Socialism, by which I mean nothing less than a society without classes, and not one in which a new classstructure has replaced the old. It is not about the policy to be followed by a Labour Government which is not seeking to establish a classless society, but only to nationalise a few more industries and add a few more pieces to the equipment of the Welfare State. I have not tried in it to argue the case for Socialism I have taken that case for granted, and have asked only how the given Socialist objective can be achieved in a non-revolutionary way. It is not addressed to Labourites who are satisfied with the way things have been going, and, if they call themselves Socialists at all, regard Socialism only as an objective too remote to be taken account of in formulating policies for the near future. It is an attempt to indicate a way of action to those Socialists who feel a sense of frustration because Socialism means to them something radically different from the managerial Welfare State. It may well be that such persons are too few at present either to bring the Labour Party over to their point of view or, should they do so, to carry it to electoral victory. About that I do not pretend to know. I am not electioneering- I am only saying that, if we do wish to advance towards Socialism, these are the kind of measures we must try to persuade the electorate to accept. G.D.H.C. 21 st May, 1954

IS T H I S

SOCIALISM?

A S O C I A L I S T , we used to be told, is 'one who has yearnings for the equal division of unequal earnings'. This description neatly slurred over the fact that the inequalities the Socialists were most intent on getting rid of did not arise out of earnings at all, but out of the possession of claims to income based on ownership and, above all, on inherited wealth. Socialists saw the gross inequalities of income as proceeding much more from the 'rights of property' than from differential rewards in return for unequal services. Most of them did, no doubt, hold that the large disparities of earned incomes were due to a considerable extent to the existence of large unearned incomes, and that, if the latter were eliminated, it would become much easier to narrow differences in earned incomes. They denied the contention of many orthodox economists that differences in earned incomes corresponded to real differences in the value of services rendered, and were dictated by inexorable economic laws. They held, as against this view, that the high salaries and fees paid to professional and managerial workers were in part a reflection of the social inequality inherent in a social system which accepted unearned incomes based on property as legitimate and as carrying high prestige, and were in part due to the near-monopoly of higher education by the children of the well-to-do. They wished to diminish the inequalities of earned as well as of unearned income; but their main attack was concentrated on the inequality due to ownership. On that ground, in the main, they demanded the socialisation of the means of production, distribution and exchange, and the elimination of the toll levied by individuals on the social product on the score of ownership. Incomes and Property In practice, however, Socialists - as exemplified by the Labour Government of 1945 - have attacked inequalities of income much more than inequalities of property', and earned incomes almost, though not quite, as much as unearned. True, they have nationalised a number of industries and services; but they have compensated the owners, if not with generosity, at any rate so as to leave them with their claims to income broadly intact. As against this, they have taken over a structure of taxes on incomes erected to meet the emergency of war and have used it to help finance an expansion of social services in time of peace with very little discrimination between incomes derived from property and incomes received as a return for personal services. Admittedly, it is often difficult, or even impossible, to draw a clear line between earned and unearned incomes where a person givds his services to a business in in which his property, or some of it, is also invested; for in such cases 4

there is no valid way of deciding how much of his ' profit' comes from his invested capital and how much from his work. But, in practice, lines are drawn, however arbitrarily, for tax purposes; and it would have been possible to discriminate further against unearned incomes if the Labour Government had really wished to do so. It did not, because it did not really want to in the main, it concerned itself rather with finding the money to pay for the social services and for other public outgoings in the easiest way, rather than with attacking unearned incomes as such. Why was this? And why was it that the Labour Government made no attempt, or almost none, to attack inequalities of ownership, and contented itself with lopping off by taxation a large fraction of the really big incomes, while leaving the property that gave rise to most of them practically intact? It would certainly have surprised the Socialist pioneers very much to find a Socialist Government proceeding in this way, for they took it for granted that the advances towards Socialism would involve the abolition of the toll levied by private owners of the means of production on the current product of social labour. Is the answer that the Labour Government of 1945 had no mandate to introduce a Socialist system, but only to carry through certain social reforms representing an advance towards the Welfare State, and to nationalise certain industries and services only on condition of not socialising the property rights of their previous owners ? This is part of the answer, and it is reasonable to plead that the Labour Government could not have gone beyond what it did without seeking a fresh mandate. That, however, only involves re-casting the question. Why, we are impelled to ask, did the Labour Party, when it put forward a programme for further advances, beyond what it had received a mandate to do in 1945, produce in succession three further programmes in which there was still virtually no attempt to attack inequality at its roots or to advance beyond mere piecemeal nationalisations to the socialisation without which it was clearly impossible to set about the establishment of a classless society ? Why has Labour not Attacked Inequality at its Roots? It did not, because it did not want to - at any rate for the time being. Why then, did it not want to do what its professed Socialist faith surely required of it? Largely, no doubt, because it did not believe that a majority of the electors would be prepared to give it a mandate to do anything of the kind The electors who returned the Labour Government of 1945 voted, for the most part, not for Socialism but for a change - and not too great a change As far as they envisaged anything clearly, they thought of the change they wanted mainly in terms of better social services, including more equal educational opportunities, and of 'full employment' as against a return to the depressed conditions of the 1930s They did not for the most part think of it at all largely in terms of nationalisation of industries - much less of socialisation of property 5

though they were quite prepared to see some industries that had got into a mess taken into public ownership. They certainly did not see it as a sudden uprooting of established ways of life, either for themselves or for others. That, indeed, was how most of the electors were bound to envisage the situation. Most people are neither Socialists nor anti-Socialists in the sense of having a thought-out view of the social and economic system they want. They have certain wants, for particular things, and certain broad preferences for one sort of society over another. But for most of them the particular wants are much more clearly present, and much more of a driving force, than the vaguer ideals they entertain, and, in a society such as ours, with its long traditions of gradual adaptation as against revolution, most voters vote on the assumption that the Government they vote for will do less than it says it intends to do, even if its declared intentions are not very extensive. Under conditions of universal suffrage, electorates do not vote for revolutions - unless the revolutions have already happened. If, in 1950 or in 1954, the Labour Party had put forward a really challenging election programme, involving a large advance m the direction of Socialism, one thing certain would have been, and would be, the loss of the ensuing General Election by the defection of the 'marginal' voters. In part, then, the absence of a more Socialist programme is to be attributed to the Labour Party's wish to get back to power - or at least to office. This is a very natural desire, not only because politicians naturally prefer winning to losing, but also because they honestly believe that they have a better case than their opponents. This latter belief is shared by their active supporters, and makes them also eager to win, Accordingly, if a moderate programme offers the best prospect of electoral victory, the odds are very heavily in favour of the party, as well as the politicians, preferring it to anything more drastic. If any of the latter feel qualms about it not being socialistic enough, they can always tell themselves that they must not run too far ahead of popular opinion, and that it will at any rate help to prepare the way for something furtherreaching later on. Does the Labour Party Want Socialism? But is this the whole explanation ? I feel sure that it is not. I feel sure that many politicians who are professed Socialists, and not a few of their active supporters, have lost the simple faith in Socialism with which most of them began - and which, up to a point, they still hold to with part of their minds - and have come to entertain doubts whether the attempt to establish Socialism does not involve too great risks for the game to be worth the candle. Quite serious and even cogent reasons can be advanced in support of this doubt. They are very often not openly admitted, but haunt the backs of people's minds and are half-repressed. Let us try to drag some of them into daylight. 6

More Nationalisation? First - to take one which lies quite near the surface - nationalisation, in the form of public management of industries and services, does not look quite so enticing as it did now that we have had some of it and can see how it works out m our society as it is. It is not so easy as it was to contemplate with extasy, or even with equanimity, the prospect of all or most of the means of production, etc. being nationalised, if that is to mean their administration by a series of Public Boards on the model of the Goal Board, the Transport Commission, and the B.E.A. We may, or may not, approve of these bodies, whether or no, it is not very easy to look forward to their extension to cover most branches of production, nor is it easy to see what alternative Socialists have to offer. So we fall to disputing about how much of industry we still need to nationalise after all, in order to infuse enough Socialism - if it is Socialism - into the economic system, and, in doing that, we soon find ourselves a long way off the old formula of socialisation - or even nationalisation - of'the means of production, distribution and exchange.' Social Equality? Secondly - to go a good deal deeper - equality, or even near-equality, does not look quite so simply desirable an objective as it used to do. The Labour Government thought it saw good reasons for paying the admimstrators and managers it needed for the nationalised enterprises as good salaries as they would have got under private ownership, or as those holding analogous positions in capitalist industry were continuing to get. It also thought there were good reasons for not paying those of its own supporters whom it appointed to such positions less than it paid to persons taken over from capitalist industry. It therefore, on what appeared to be valid grounds, created a new Labour aristocracy of officials in the public service, and in doing so had at any rate some influence in causing such bodies as Trade Unions to increase the salaries of officials who were not so transferred. In effect, it sanctioned degrees of inequality of earned incomes which would have horrified the Socialist pioneers. It did this the more easily and with fewer doubts because there was proceeding at the same time so considerable an uplifting of standards at the bottom of the social scale and because so many workers in positions of superior vantage had actually become able to earn good middle-class incomes that it seemed natural for those who were higher in the scale of incomes earned by honest work to move up too. So, no doubt, it was, but that cannot alter the fact that the consequence was to undermine the old belief in a much nearer approach to economic equality, and to make it very much more difficult to launch any attack on middle-class, or even- upper middle-class, incomes in general More State Power? Thirdly - and here we come nearest of all to the bone - the experi-

7

ence of one kind of totalitarian rule under Hitler and of another kind of totalitarianism under Stalin unavoidably put into the minds of reasonable persons a fear of placing too much power into the State's hands, even if the State professed to be Socialist. The workings of universal suffrage under totalitarian conditions did not encourage the continuance of the faith that, where the 'people' had the right to vote - all nominally on equal terms and with the secrecy of the ballot guaranteed - democratic government would necessarily follow as a result. Democracy came to be thought of less exclusively in terms of electoral rights and more in terms of personal freedom - of speech and writing and association - and with this went a greater preparedness to take account of the claims of minorities and of groups within the larger society. This reacted on, and interacted with, the new look of nationalised enterprise. It began to be seen that the government of an industry by a National Board could not be simply identified with its government by 'the people', and that there was a real problem of finding out how to control the controllers. In Great Britain, this fear of putting too much power into the State's hands has hardly come, as yet, to be more than an uneasiness. We are in no present danger of losing our rights of free speech or association, or of passing under the control of a 'one-party' State machine. But we cannot quite avoid asking ourselves whether our present immunity in this respect may not have something to do with the fact that what we have been engaged in setting up has been, not Socialism, but only a partial embodiment, within our limited opportunities, of the Welfare State. Socialism and the Welfare State Of course Socialism involves the Welfare State that is implied in the old slogan 'From each according to his capacities, to each according to his needs.' It has always been one of the essential Socialist objectives to put an end to poverty and to ensure that in the distribution of incomes the children, the aged and the incapacitated are not pushed aside by the predatory or the strong. To the extent of our success in advancing towards this we have been doing what every Socialist must wish to do. But the Welfare State is, all the same, not Socialism in the form in which we have been attempting to move towards it in recent years it is at most only socialistic - if even that. For what we have been doing is not to put people on an equal footing, but only to lessen the extremes of inequality by re-distnbutmg grossly unequal incomes through taxation; and even this re-distnbution has quite largely taken the form of making the poor pay for one another's basic needs. No doubt, the taxation levied on large incomes has been severe no doubt, it would have been quite impossible to develop even such social services as we have developed without putting the major part of the cost on the workers and the middle classes, for the simple reason that the total income of the rich, even had it been possible to take it all, would not have been nearly 8

enough. Nevertheless, we need only use the evidence of our senses to assure ourselves that the rich are still among us and that the class structure of our society remains, if not intact, very much in being. What is Happening to the Glass-Structure? What has happened, stated in the broadest terms, appears to be something like this I. The Bottom Dogs At the bottom of the scale, sheer hunger and malnutrition have been greatly diminished. Nobody need starve nobody, in the last resort, need go without the absolute minimum needs of life. I know that many old age pensioners are having a raw deal, and that the conditions are still heavily weighted against large families, but it will hardly be denied that, in comparison with 1939 or any earlier date, there has been a great improvement in the position of both these groups, especially when the supplementary payments from the Assistance Board are taken into account Those who suffer sheer want to-day for absolute lack of means are fewer by far than they used to be In spite of this, the 'bottom dogs' remain there is still a stratum that lives under conditions of want and mal-adjustment. But this stratum owes its inferior position to-day less to the lack of social legislation designed to meet general needs than to a failure to devise special means of dealing with special cases. The 'submerged tenth', which is to-day much less than a 'tenth', presents a longrun problem which is not so much one of further re-distribution through taxation as of devising, by education and training, improved ways of equipping for useful activity those who have something mentally or physically 'wrong with them,' but are not incapable of earning their livings and looking after themselves if we help them to discover how. 2. The Unskilled Workers At the next level, that of ordinary unskilled labour, the improvement in economic conditions has been immense. This stratum has benefited most by full employment, both in its ability to command a better wage and in the increased regularity of employment. These factors have been much more important for it than the development of the social services, though that of course has counted too - especially sickness benefit and the supplementary help given through the Assistance Board, and also children's allowances, despite their inadequacy. Many of the families belonging to this stratum are, no doubt, still rather bad at spending their money, and many of them are hampered by very bad housing. But there can be no doubt that this is the part of society that is benefiting most from what has been accomplished, and will continue to benefit - if full employment holds. We must not, however, forget that it is also the group that would be flung back most disastrously were full employment to disappear - though even so its lot would be better than in the 9

past because of the better social services on which it would be able to fall back, if it can be assumed that these services could and would be maintained intact in face of a slump. 3. The Semi-Skilled Workers and the White-Collar Brigade At the next higher level, we come to the main body, not of highly skilled workers, but of the semi-skilled in manual jobs and to the corresponding groups of non-manual workers, such as shop assistants and the lower grades in clerical employment. These groups include a rather high proportion of women workers who are not heads of households and are in many cases living in households in which there is also a male earner - a father or a husband. Such earners - men as well as women have also benefited greatly from full employment, as well as from the growth of the social services On the other hand, there are in this stratum a good many heads of households, especially those with young families, who have benefited much less because they are in time-working jobs for which wages have risen less than the average. This applies particularly to some of the non-manual groups, and also particularly to those who are engaged in employments that do not produce profits - such as the public services But side by side with these relatively unfortunate groups there are others, especially piece-workers on repetitive work in flourishing industries, whose earnings have risen by much more than the average , and for such workers the gain has been large. Economically, they have risen to parity, if not beyond parity, with large bodies of skilled manual and non-manual workers who used to have both higher incomes and higher social prestige 4. The Highly Skilled and the Lesser Professions Fourthly, we come to the definitely skilled manual workers and, on a broad level with them, to the higher grades of clerical and distributive workers and to such large bodies of professional workers as draughtsmen, teachers, nurses, and professional 'auxiliaries' of many other kinds. In comparison with most of those in the groups lower down the scale, this stratum has fared rather badly. The manual workers included in it have benefited much more than most of the non-maual workers from full employment, and also more, I think, from the extension of the social services. But wage-differentials between skilled and less skilled manual workers have been reduced except for a smallish minority which has been enabled by special bonuses and allowances, or by high piecework payments, to earn very good money indeed - mainly because certain kinds of highly skilled labour have been seriously scarce, so that employers have gone out of their way to retain its services These small privileged groups have risen notably in the economic scale, whereas the highly skilled non-manual workers, except those who have been promoted to managerial positions, have lost ground - especially those in non-pront-makrng salaried employment that allows no scope for extra 10

earnings. On the whole, skilled manual workers have gained more than salaried employees, and among skilled manual workers there has appeared an increasing differentiation between those who have been able to secure special treatment and those who have found the margin of difference between their wages and those of the less skilled considerably reduced. But even the manual groups to which this last condition applies have in many cases reaped great gains through full employment. 5. The Lesser Bourgeois Classes Partly on a parity with the fourth stratum, partly rising above it, and partly below it comes the large mass of shopkeepers and independent jobbing small masters in such trades as building repairs and decoration. About these it is difficult to generalise. Many small traders complain of cut margins, but I think it is undoubted that in general their position has been improved by quicker and more assured turnover resulting from full employment and from scarcities of goods, which have reduced dead and idle stocks. Some traders have undoubtedly done remarkably well - even apart from the smallish minority of black marketeers, who have had the time of their lives. The independent jobbers have also done well in most cases, because of full employment. In general, the relative social and economic position of these groups has not greatly changed if anything they have done better than the average - certainly better than the salaried minor professionals or the less fortunate groups among the skilled manual workers 6 The Higher Professions and the Managers This brings us to the higher professional groups, including the higher ranges of the public services and of teaching and academic research, the doctors, dentists, and other medical groups of comparable status, the practising barristers and solicitors, the middle ranges of business management, including the higher technicians, and the owners of businesses having a comparable status. The net incomes of all these groups have of course been considerably cut into by high taxation, but the gross incomes on which these taxes fall have moved very differently for different groups within this broad stratum of society - the part of the upper middle class which works for its living and gets its payment in salaries or in professional fees. Here again, the fixed salary-earners in occupations which do not result in profits have fared worst — except the medical groups, which have done remarkably well for themselves by effective and obstinate bargaining The managerial grades have, on the whole, done better than the professionals, at any rate in the more flourishing industries under private ownership elsewhere, they have not done so well, but a good deal better than most of the salaried professionals. Owners of smallish or middle-sized businesses have mostly flourished, because full employment and shortage of capital for investment in displacing obsolete plant have made profits easy to earn - though they are 11

now in many trades less easy than they were a few years ago. As long as new capital goods remain scarce and demand high, profits will remain high too, and small businesses as well as large will reap the benefit of an unexpectedly long life for their plant 7. The Top Grades At the highest level among earned incomes we come to those of the topmost managers and administrators, and these are not only the best placed for supplementing their incomes by means of expense allowances but also the most likely to be able to eke them out with capital gains. Only a thin line separates them from the big entrepreneurs who draw not salaries but dividends as their main source of income Whoever has suffered as a consequence of high taxation, they among the wealthier groups have suffered least, and they have been reinforced by the highly paid chief executives of nationalised industries, whose rewards help to cast a halo round theirs. 8. The Farmers There remains one group that calls for separate mention, not as the highest, but as ranking undoubtedly among those which have most improved their position Farmers, large and small alike, have had a big lift as a result of the measures adopted to increase the home output of food. They are in fine feather, whether they have been 'feather-bedded' or not. Summarising these broad generalisations, we can safely say that most 'bottom dogs', most unskilled workers, some semi-skilled workers, a minority of skilled workers, most shopkeepers and jobbing builders, most doctors and dentists, most of the higher business executives, most private employers, and nearly all farmers are both absolutely and relatively a go6d deal better off than they or their predecessors were before 1939; that some semi-skilled and most skilled manual workers, most blackcoats in clerical and distributive jobs and in public employments, and most professional workers in non-profit making occupations are at any rate relatively worse-off; and that it is impossible to generalise about the middle grades of managerial and technical employees This makes up a general picture of income re-distribution, as a consequence of full employment and taxation combined, embodying highly significant changes, but certainly not anything that can be regarded as carrying us far in the direction of a Socialist society. The picture needs of course to be completed by bringing in those social groups which depend on unearned incomes To these we can now turn 9 The Small and Middle Investors The small investors, who hold a high proportion of fixed interest securities and preference shares, have definitely lost ground This affects particularly retired persons, including those living on pensions and m12

surances. It affects also the non-employed members of rich families, and also those who derive middle-class incomes partly from work and partly from property. Indeed, those in this group who depend on fixed salaries plus small investments have been hit in both capacities. In general, the sections of the middle classes who do not work for a living have lost a great deal of ground. Landlords of small house-property have been badly affected by rent controls, though some of them have profited by the continued occupation of dwellings that ought to have been pulled down long ago, had it been practicable to replace them. 10. The Big Capital-owners The bigger investors, most of whom are in a better position to go in search of capital gains through speculation or change of investments, and who tend to hold more ordinary shares than bonds or preference shares, have fared much better, and those of them who own urban land and non-residential buildings (or premises not subject to rent control), have also done well. Agricultural landlords, where they have been in a position to revise rents, have been able to skim off a share in the farmers' gains. These conclusions about what has been happening to unearned incomes are not very comforting from the standpoint of those who would like to believe that we have been advancing towards Socialism by easy, equitable stages. They may not be prepared to spend much sympathy on the declining sections of the rentier middle class, but it is hardly socialistic to weight the scales in favour of the richer capitalist as against the poorer. Achievements of the Welfare State The gains achieved through full employment and the Welfare State are beyond doubt considerable in terms of the reduction in the amount of sheer suffering and enfeeblement of human quality by privation. So far, they are a great good. They depend, however, at least as much on full employment as on the expansion of the social services, and are precarious to the extent to which there is a danger of severe unemployment coming back. Moreover, these gains have been secured at the expense of a narrowing of the differentials awarded for most, though not for all, kinds of superior manual skill, and may be reacting on the future supply of skilled workers by making it less worth while to learn a skilled trade. The supply of new recruits for the non-manual occupations which have declined in relative earning capacity is for the most part less likely to be affected because our educational system has a strong bias in favour of such occupations and because some of them are more attractive in themselves, and may still carry higher prestige, than better-paid manual jobs. Are we Advancing towards a Classless Society? What does all this indicate in respect of the class-structure of the society towards which we have been moving ? Certainly not that we are 13

advancing towards a 'classless society'. Except at the very bottom of the scale - the numbers in which have been reduced - there has been a diminution of economic and social inequality between skilled and less skilled manual workers, and between manual workers and 'black coats'. But there is also a tendency for a new grade, or even class, of highly paid super-skilled manual workers to develop and to increase its distance from the main body. These are not Stakhanovites; for many of them are time-workers or setters-up rather than operators of machines, and even where they are piece-workers their exploits are not announced in the newspapers or rewarded with public decorations. But they constitute* a new and growing labour aristocracy, with 'money to burn' because they are only now adjusting their living standards to their increased earnings. They are still, however, in this country only a small group, not at all comparable with the much bigger labour aristocracy that has grown up in the United States. Nor is there at present any sign of a wish on their part to dissociate themselves as a group from the groups lower down in the economic hierarchy. More widespread for the present is the economic assimilation between the large body of fairly skilled, but not super-skilled, manual workers and the main body of 'black coats': so that these too are being merged economically and to a considerable extent socially as well into a single stratum. A step above them socially, and sometimes but not always economically, the lesser professional groups and the general run of technicians constitute, together with the middling tradesmen, an intermediate stratum - a petite bourgeoisie which, far from dying out, is more than holding its own in relative numbers. With it go a large part of the farmers and many small employers, such as garage keepers, jobbing builders, wireless dealers, and electrical contractors so that this stratum includes groups of widely divergent fortunes and interests. It is linked on the one hand to the major professions and on the other to the group of middling profit-makers and industrial executives. A part of it has been losing, and a part gaining ground: it has no common social outlook or political allegiance, though the greater proportion tends to be politically Conservative, with some tendency to swing over when things go badly wrong. The Rich Remain Above all these strata the rich remain. But they have considerably changed their composition. Riches and aristocracy still go together in the case of a limited group of old families which have large holdings of urban or industrial land or have used the accumulations of the past from land to become great investors in business. To these must be added the aristocracy of banking and commerce which has bought or married its way into the 'upper classes' in the traditional sense of the term. But side by side with these, and as rich or richer, are those who have made great fortunes in business too recently to be counted among 14

the 'idle rich', and this group of new wealth, including now many highlevel business administrators who draw large salaries and have risen by personal exertions from the middle or lower grades, forms a larger proportion than ever before of those who can afford to live at a luxury level and to hob-nob, without much feeling of inferiority, with their American opposite numbers. Is the Welfare State a Step towards Socialism? Such a society as this is definitely not Socialist, and I cannot feel that it is even on the way to becoming Socialist. It is, of course, much less aristocratic than the society it is displacing in terms of social origins the top classes of to-day are a very mixed lot. Oxford and Cambridge are no longer gentlemen's preserves to anything like the same extent as they used to be, a much lower proportion of top Civil Servants and of the successful members of the higher professions come from a small group of gentlemen's schools, and on the boards of directors of the great business concerns there are to be found a large number of 'self-made' men who have risen, if not from the ranks, at all events from quite low beginnings. Our society has become a good deal more 'open' than it used to be, in the sense that the old distinction between 'gentlemen' and 'notgentlemen' has largely broken down. A 'player' can not only captain England, or his county, at cricket he can also captain the Nuffield Organisation or Unilever - or, of course, the B E.A. But on the whole the new recruits to both grammar schools and universities tend to come much more from the poorer sections of the middle classes than from the families of manual workers - and to come hardly at all from the less skilled sections of the manual working class. No doubt, some children of manual workers get their higher education rather through technical schools and colleges than through grammar schools and universities, and account has to be taken of this in estimating the effects of educational development on the class structure. But in this case too the children of the unskilled workers are largely left out. What we are getting in practice appears to be a society in which the field of recruitment for the superior positions is being considerably widened, so as to give those who can get as far as the higher ranges of grammar or technical education an improved chance of rising further even if their parents cannot afford to help them. But at the same time we are putting an increasingly difficult barrier between those who do get so far and those who do not, and this is still in the main a class barrier, though it has been moved further down the social scale. Moreover, among those who surmount this barrier only a small proportion can actually move up to positions of affluence and power, and those who do achieve this become assimilated to the new mixed upper class, take over its ways and spending habits, and with it constitute a new oligarchy of high executives which falls heir to the old gentlemanly prerogative of ordering its inferiors about. If this is a correct picture, the question that arises is whether a society 15

of this sort is on the road to Socialism. The question is whether it does not, as a hard matter of fact, offer the prospect of even greater resistance to Socialism than the society it has displaced. In other words, is the Welfare State, in the form in which it has been developed so far, a step on the road to Socialism, or a step in quite different direction - that is, a step, not towards a classless society, but rather towards a new stratification that is likely to persist and to become more marked ? The situation outlined in the preceding paragraph is of course only a new version of a very old dilemma. In France the peasants, when they had got the land and destroyed the old feudal privileges, turned promptly into a conservative class and became a bulwark against Socialism. They might easily have done the same in Russia had not the Bolsheviks first stamped hard on the kulaks and then collectivised the villages. In our society, the opening of higher education to wider class groups (but by no means to all, regardless of class), combined with full employment and greater social security, may well be creating barriers in the way of Socialism rather than helping its advance, especially if a child's whole chance of rising to the higher social and economic levels is to depend on the results of a single test, applied at an age when the nature of the home environment is bound to be of great influence in determining these results. This kind of test looks like leading to a new class structure which will on the one hand cut the working class into two - those with a chance of rising further and those without - and will on the other animate the upper of these two segments with a desire to protect itself against the lower, and also permeate it with a belief in the virtue of personal advancement and in the values of an acquisitive society. In short, is it towards Socialism we are tending, or towards an anglicised version of the American conception of democracy? Is our goal the classless society, or only the so-called 'open' society which is in fact still closed to a majority of the people ? The Future What will happen to our society, will evidently depend on the conditions to which it has to adapl its ways of life and on its responses to these conditions. The days are over when Great Britain's position in the world was so commanding that other peoples had to adapt their ways to ours, and the internal trends of British development furnished, broadly speaking, a sufficient basis for predicting the future, at any rate for some distance ahead. As things now are, we cannot rely, as a nation, on getting nationally better off as we improve our productive techniques, no matter what may be the impact on us of external forces. We are caught up in a world economic process in which we are no longer the leaders, but only one people among many - and by no means the most powerful. The Economic Outlook - First Hypothesis Obviously one great determinant of our social future will be what 16

happens to employment and to the national income. The real national income of Great Britain, as matters now stand, depends mainly on three factors - the productivity of British industry and agriculture, the readiness of other countries to receive British exports, and the terms of trade - that is, the rates of exchange between exported and imported goods. I do not include the level of employment as a fourth determinant, because it is mainly, though not exclusively, determined by the other three. Full employment could no doubt be undermined by ill-considered financial policies even if the other factors were all favourable, but this is rather unlikely to happen, though it could happen if the British Government were foolish enough to yield to American pressure for convertibility of sterling into dollars. Leaving that danger aside, the three factors I have mentioned are the main ones They are, of course, to some extent interdependent. The more productive our industries are, the better will be our chances of selling our exports over whatever barriers may be set up against them and the less favourable will be the terms of trade we shall need. The fewer barriers we meet with against our exports, the more we shall be able to take advantage of the economies of large-scale production, and the better we shall be able to afford to have the terms of trade turned against us The more favourable the terms of trade are, the less we shall be hampered by the need to restrict imports in ways that damage production and the less will be the real cost of the imported materials which constitute a substantial fraction of the value of the goods we export. On the other hand, favourable terms of trade for us mean unfavourable terms for those of our customers from whom we import, and thus reduce their purchasing power. If all these factors act favourably, there is no reason why our real material income should not increase in future at an average rate as high as that of the post-war years, or why we should experience any difficulty in maintaining full employment. If that happens, the existing trends are likely to continue unless we deliberately take action to alter them. We shall be able to carry through fairly rapidly those further developments of the Welfare State - for example, in the field of education - to which we are already committed, and also to rectify the grievances of such groups as old age pensioners by improving social service benefits. Real wages will be able to rise, even if but slowly. Profits will remain high, and perhaps go still higher, and investment will be able to increase-including something for overseas investment, especially in Commonwealth countries. But all this, which rests on the most favourable hypothesis that can possibly be entertained, will not of itself bring us an inch nearer Socialism, and may even carry us away from it by strengthening the tendencies towards class-differentiation on the new basis and making a majority of the electorate prefer going on as they are to embarking on any risky adventures in social and economic change. 17

Second Hypothesis Having taken the most favourable hypothesis, let us now take the least If productivity stagnates, if foreign markets are obstructed by fresh barriers or reduced by unwillingness or inability to buy, and if the terms of trade turn against us, it will become impossible to maintain full employment and necessary to reduce real wages and possibly social service benefits in order to cut down consumption of imported foodstuffs and materials to what we can afford to buy with our restricted exports. Such a situation, highly unfavourable though it would be to Trade Union bargaining, would almost certainly benefit Labour politically unless the Labour Party had the misfortune to be already in office when it set in It would engender mass discontent, not only among the workers but also in the middle groups, and might clear the way for a considerable move towards Socialism if the Labour Party were minded and prepared to attempt such a move. The economic catastrophe envisaged in the preceding paragraph is, however, unlikely to occur in any such complete form If foreign markets for our exports were seriously reduced by a world slump, the effect would almost certainly be to turn the terms of trade for what exports were left in our favour and not against us Even so, the situation would be difficult enough, and the maintenance of full employment would hardly be possible. With fewer jobs than workers looking for them, the bargaining power of the Trade Unions would be weakened, especially for the workers in the export trades and for the less skilled workers in general. Real wages would slip back the cost of the social services would rise sharply, and we should soon feel how inadequate a protection they give when the buttress of full employment is removed The effect of such a situation, though less drastically than in the more pessimistic hypothesis of the preceding paragraph, would be a growth of social discontent which would create a stronger working-class demand for a more socialistic programme, but might fail to swing the intermediate groups, or enough of them, over to supporting it In that event, we might easily get a Labour Government more like that of 1929 than that of 1945, impotently plastering the distress, but quite unable to make up its mind to attempt a drastic cure, or perhaps failing to carry a majority of the electors with it even if it did make the attempt. Remedies: The Abolition of Large Inherited Fortunes This is a depressing view, but what else can we fairly expect? Hardly anybody is at present seriously trying to make converts for Socialism, or for anything more than further advances, as occasion allows, towards the Welfare State. Indeed, no one has even attempted to think out how Socialism can be compatible with the tendencies which the Welfare State accentuates and promotes, though clearly it must be made compatible with those tendencies if we are to progress towards it via increasing instalments of social welfare. 18

The first question that arises here is that of the extent to which Socialism is to be regarded as compatible with economic inequality in its various forms I think it is clearly incompatible with any social system that allows great fortunes, or even moderate fortunes that have been inherited once, to be transmitted at death I see no reason why it should be regarded as inadmissible for a person to pass on to his wife or children, or perhaps to other near relatives, moderate sums which he has accumulated by saving in his own lifetime, or of course to transmit in moderation personal possessions which are not of a capital kind, and I see every reason why it should remain possible for security of tenure, subject to good use and payment of rent, to be granted to the families of farmers or householders from one generation to the next But beyond these reasonable limits I think Socialists are bound to stand for doing away with inheritance, because they cannot recognise any able-bodied person's right to live in idleness on the labour of others or to claim on account of inherited wealth a much bigger income than he can earn by his own exertions. Ac-

cordingly I believe that not merely higher death duties but positive abolition of the right of inheritance beyond fairly modest limits should take a high place among Labour's next steps towards its declared Socialist objective. The transition could, if it were thought fit, be eased by allowing limited additional annuities to be paid for a single further life, but beyond the permitted sums generally applicable, the capital should pass to the public, subject to such transitional charges as might be allowed. This is, of course, a very long-standing Socialist demand. It goes back to the followers of Saint-Simon in the 1820s, if not even further, and those Socialists who have not explicitly made it have passed it over only because they have merged it in wider demands for the complete expropriation of the sources of unearned income. In a social revolution such expropriation may be possible, but for us, who are seeking a way of advance towards Socialism by constitutional methods, it is clearly out of the question. Piecemeal nationalisation involves compensation, and does not solve the problem of eliminating the claims of ownership In such a situation, these claims can be dealt with only in two ways - by levies on the capital assets of the living, or by narrowing the right to acquire wealth by inheritance. I am not ruling out the first of these methods, especially if the second proves to be too slow, but surely the second is the better, because it involves much less dislocation of established expectations and fits in best with the widespread feeling that, as far as possible, the members of each new generation should start fair, without preventible handicaps or advantages. No doubt, in the minds of many people, there is also a sentiment that a parent ought to be allowed to provide for his widow and his children, and in our class-divided, unequal society this sentiment is natural enough. Let us then concede to it, as long as serious economic inequalities remain in being, the testator's right to leave to his widow or children his house or farm, up to a maxi19

mum value, or an equivalent capital sum, but beyond that, not property, but only annuities equivalent to a proportion of what he is 'worth' at death. Under this arrangement all property above the permitted maximum would become at once public property, and the annual charge upon it would be wiped out at the close of a single further life. A New Way of Socialisation Such taxation of inheritance would, of course, mean that the State would have to be prepared to take over the actual property of those dying with considerable fortunes and not money payments supposed to represent their value. For it would create a situation in which there would be far too few buyers for the estates passing at death to be sold to new private owners. It would therefore mean that the Government would be continually acquiring ownership both of shares and bonds of all sorts and of other forms of property, such as houses, landed estates, and private businesses. Nationalisation, or rather Socialisation, would thus advance by a new route, even if no further industries were taken over by the methods hitherto adopted. The State would become, to an ever-increasing extent, part proprietor of a host of productive businesses, and the holder of mortgage charges on many estates and noncompany businesses remaining in private hands. It could use the powers it would thus acquire to appoint its own directors to joint stock enterprises and to foreclose on concerns which failed to meet their obligations. For a time, it would find itself the partner of profit-making business men, and engaging in profit-making enterprises. But I can see no valid objection to this, if it is merely a stage in the process of acquiring total, or majority, ownership of the businesses in question, and I can see the positive advantage that it would not involve the creation of more top-heavy centralised administrations of the type of the Coal Board and the Transport Commission. Of course it would be necessary for the directors whom the Government would appoint to such businesses, not only to "play an active part in their operation in the public interest, but also to work together, through some sort of collective body including all the state directors within an industry, and to follow a collective policy laid down by the Government's planning agencies. It would be necessary to train men specially for these tasks, in order to ensure wellinformed intervention in the affairs of the businesses concerned, and the long-run effect would be to establish socialised production over a wide field without setting up giant organisations in forms of enterprise better suited to relatively small-scale, and within limits competitive, operation.

The Problem of Large Earned Incomes The restriction of inheritance would of itself do nothing to lessen inequalities of earned income, though it would do a good deal towards levelling those who receive large incomes partly from work as managers 20

or members of the higher professions and partly from ownership of property In the main, excessive disparities of earned incomes would have to be tackled by other methods. As the Government now meets a large part of the cost of higher education and professional training, it is no longer reasonable for the incomes of those who have received this help to be calculated at rates meant to pay back the expenses of their prof essional preparation Nor should there be any

need to pay in business occupations the very large salaries which are based largely on a comparison with what is received by capitalist employers in the form of profit. It is, however, much easier to state the case for bringing down the higher earned incomes to a reasonable level than to find effective methods of setting about it. One thing that could be done would be to impose much stricter control on the granting of expense allowances, or even to abolish them altogether save in very exceptional cases. What more will be needed will depend partly on what happens to the cost of living If this continues to move gradually upward, the desired result can be secured by a simple refusal to allow the higher salaries to be increased as prices rise, and at the same time by using the influence of public directors to prevent excessive payments in directors' fees and emoluments. If, however, the cost of living falls or remains stationary, stronger measures will be called for, but these can be held over for the time being, in order to see how prices go, on condition that steps are taken to prevent further rises being given to those who are already getting too much As for the middle incomes, no special action seems to be called for, except a steady policy of reducing trading margins so as to squeeze out the inefficient as fast as they can be replaced by more efficient producing or trading firms - which should become fully practicable if the level of new investment is made high enough to keep pace with technical progress Wage Problems Wage-incomes and the lower ranges of salary-incomes raise more complex problems. It is fully consistent with Socialist principles to allow whatever differentials turn out to be needed to procure adequate recruitment for the more skilled kinds of work, and also to offer whatever piecework or similar incentives turn out to be necessary in order to secure high output. Nobody, however, can believe that the existing wagestructure complies with these requirements, or is anything other than a confusion due partly to the varying fortunes of the tug-of war between employers and Trade Unions and partly to sheer accident or tradition. In a Socialist society, it will clearly not be possible to continue to allow wage-rates to be settled by a large number of unco-ordinated bargains, influenced largely by the degree of shelter or exposure of particular industries to outside competition, or to the expansion or contraction in the demand for their products. There will have to be both some general way of determining how large an aggregate of wage-payments the eco21

nomy is able to afford, and, broadly, how what is deemed to be available shall be divided among the various claimants. It would be premature to-day, while non-wage incomes remain uncontrolled and while the greater part of industry is still under capitalist operation for profit, to introduce any 'national wages policy' under which a body of highly placed officials would have the right to fix wages as they might think fit. But, as we advance further towards a Socialist society, the planning of wages will become indispensable, if only because wages and prices are inevitably linked together and it will be as a rule a matter of choosing between higher wages and higher prices, with the balance of advantage shifting in favour of lower prices as the toll levied by unproductive consumers is reduced by the erosion of incomes derived from ownership. Towards Social Equality Class-structure is a matter, not only of incomes, but also of culture and of social prestige I regard it as a great calamity that Labour Governments have allowed themselves to fall into the evil habit of conferring titles both on persons who are barely distinguishable from those ennobled by their political opponents and - worse still - on persons who are supposed to share with them in the Socialist faith In the case of peerages, this practice is defended on the ground that, as long as the House of Lords exists as a legislative chamber, Labour has to be represented in it, but no such excuse can be put forward for the growing practice of authorising Trade Union and Co-operative leaders to stick 'Sir' in front of their names As for peerages, surely the correct course is to abolish the House of Lords at the earliest possible moment, and in the meantime, to make do with those who have been ennobled already to assist it in winding up its affairs I cannot help saying that it fills me with sheer disgust to see Labour leaders accepting titles for no conceivable purpose except that of denying their alleged faith in social equality - I mean those who become Sirs', or join the peerage without being specially needed to represent the Government in the Upper Chamber / cannot conceive how any Socialist can defend this kind of social snobbery , which does immense harm to the Socialist cause by compromising the Labour Party with the unclean thing and spreading cynicism about the sincerity and disinterestedness of-those who lead it.

In the educational field, Labour is to be congratulated on the good fight it is putting up in many places for the Comprehensive School, for educational equality is a vital part of social equality, and as long as we allow snob schools to continue we shall have a steady stream of snobs coming out of them. Parity of esteem is impossible between schools most of whose pupils leave at fifteen and schools where most stay up to eighteen and a substantial proportion then go on to College or University. It is even impossible between the Modern School and those Grammar Schools many of whose pupils leave at sixteen or at most seventeen. There used to be an undeniable case for parents who objected to send22

ing their children to schools where they would not only get an inferior education, but also pick up bad manners and ways of speech, and perhaps diseases too, from the children of the slums But that case has largely disappeared, thanks to the great improvement m the economic condition of the less skilled workers A residue is left, but must be dealt with by special measures and not by perpetuating the 'two nations' policy of nineteenth-century schooling Of course, in order to make the Comprehensive School workable as a general practice, we shall have to improve the quality of teaching, as well as to do a great deal of new building and equipment. These things will take time there is no danger whatsoever of our going ahead with them too fast. They must be given a high priority because, even so, they are bound to take so long in the doing. We must, however, be careful to ensure both that our Comprehensive Schools do not keep back the quicker and cleverer children - whose brains and skill our society needs - and that we get m them a proper attention to the training of manual as well as intellectual capacities I do not mean only technical education designed to prepare pupils for particular occupations, even in a broad way. I mean also that everybody - boys and girls alike - ought to come out of school with a reasonable capability for doing ordinary manual jobs about the house and garden and with an adequate acquaintance with the household arts, and I mean too that there ought to be the fullest opportunity for each individual to follow his particular bent in the use of his hands as well as in more literary or cultural pursuits. We have suffered badly in Great Britain from an unnatural divorce between literary and technical education, not only at the higher levels but at the elementary levels as well In order to correct this, we need in every type of school teachers who know how to use both their heads and their hands and can teach their pupils to do things as well as to learn about them in the abstract. A society of social equals, as distinct from one of masters aided by servants to do the dirty work, needs an all-round training in the art of looking after itself, without calling in a professional 'workman' to do simple repairs or just letting things go to rum for lack of aptitude for putting them right The Supply of Ability Some people say that a more equal society is impossible, or will lead to disaster, because there are too few able persons to run it They argue, for example, that the increased numbers in higher education have already involved a fall in average quality. I believe this to be nonsense I do not profess to know whether the supply of real first-raters can be greatly increased by improving our educational system, but I feel no doubt that the supply of good second-raters can be, and that more good second-raters are what we chiefly need to do the jobs which the advance towards a fair deal for everybody will require us to fill No doubt, it would be nice to double our supply of first-raters, but a limi23

ted number can go a long way if they have good seconds-in-command at call. The Ageing and the Handicapped This educational side of Socialist policy is becoming more and more important now that we are already well on the way towards solving the purely economic part of the problem of the 'bottom dogs'. Hardly less important are two other problems which we are much less near to solving - that of the residue of physically or mentally handicapped persons, and that of the increasing average age of the population Slowly, we are learning that, given the right methods, a great deal can be done to retrieve the mentally handicapped and enable them to take a useful place in society, and to help the physically handicapped to overcome their disabilities, but we have still a long way to go in these matters, which are of vital importance in the making of a society bent on diminishing social inequalities to the fullest possible extent The other matter is that of adapting our economic arrangements so as to make it easy for old people who can no longer do a full week's work at the occupations in which they have been engaged either to continue in part-time employment or to find openings for alternative work within their capacities and desires. This problem is of the same order as that of making better provision for the rehabilitation of the partially disabled and for their employment as far as possible on a self-supporting basis These matters are all important not only because an ageing society cannot afford not to make full use of every person capable of doing a useful job, but also because work, for those who are capable of it, affords much better prospects of happy living than enforced idleness and enables the aged and the handicapped to play a much more equal role in the life of the community I should like to see the Labour Party taking up this group of problems and giving it a high place in its programme It is not a simple matter of welfare legislation it involves ensuring that industry shall be so organised as to make room for the work of the groups concerned and to devise special arrangements for them, wherever these are needed, in ways that will isolate them as little as possible from other workers, and will emphasise their capacities rather than their disabilities. What is needed is to put as many as possible of them into employment, not in segregated groups, but as the colleagues of ordinarv workers, and this involves making arrangements with the Trade Unions as well as compelling employers to provide the necessary openings Above all, it involves doing all that can be done to help the partially disabled and the ageing to develop and maintain their productive capacities at the highest practicable level. Industrial Democracy I come now to the major problem of industrial democracy Given full 24

employment, Trade Unions are in a powerful bargaining position, because employers cannot afford to lose the services of even moderately efficient workers Full employment has been chiefly responsible for the great changes that have come about in factory relations and in industrial discipline as a

whole. The foreman can no longer play the tyrant as easily as he could in the past, and the higher management has to mind its P's and Q's when Trade Union susceptibilities are in question In some industries, including those which have been nationalised, there have been considerable developments of joint consultation in the workplaces as well as at higher levels, and Trade Union bargaining has spread to many trades in which it was previously almost non-existent. So far, so good, but neither Trade Union bargaining nor joint consultation makes the worker a

responsible partner in industry, or necessarily gives the individual a sense that it is up to him to render of his best and to think of himself as a member of a team co-operating in the performance of an essentially social task. He cannot, indeed, be expected to have this sense of responsibility where businesses are still being carried on for the profit of absentee shareholders, or where the management still behaves as a caste of superiors issuing orders to inferiors to whom it recognises no democratic responsibility. Exceptionally, a few managers or employers do contrive, by virtue of sheer personality, to establish really friendly and co-operative relationships, but most managements are incapable of achieving this and will continue to be so as long as they represent a business structure in the control of which the workers have no share This applies even to the nationalised industries, in which the controlling boards are far too remote from the actual workers to give them any sense of participation and would remain so even if the Trade Unions were allowed to appoint members to sit on them in a formally representative capacity In the past, in a society explicitly based on inequality, it was for the workers to obey orders and for the representatives of their 'masters' to give them. Obedience was enforced partly by custom, partly by inducements such as higher earnings for greater efforts, and partly - and to no small extent - by fear of the sack or of being 'stood off' for offending the authorities, or in extreme cases of being blacklisted as well as sacked. Nowadays, these fears have become much less potent, though they still exist. Piecework incentives and other monetary inducements still retain their power, but have been to some extent weakened by the introduction of guaranteed minimum rates and by the diminished danger of getting dismissed for not producing enough. The greatest change of all, however, has been in the lessened prestige of those who give the orders and the sense of increased power to question them among those to whom they are given. The consequence is a relaxation of discipline which is bound, for the time being, to react adversely on output. This is partly to the good, where it prevents slave-driving or feverish selfdriving under the influence of fear; but it is also to the bad, where it conduces to irresponsibility or to a refusal to co-operate in team work. I am 25

not suggesting that, in most industries, average output has fallen, on the contrary, it has been going up despite a small reduction in average hours of work. But the increases have been due mainly, if not entirely, to greater mechanisation and improved working arrangements rather than to higher effort or better co-operation. If we mean to constitute a really democratic society, permeated by the spirit of social equality, we shall have to find ways of replacing the old incentives of fear and habit with new inducements more consistent with the recognition of equal human rights. In large enterprises I do not think this can be done as long as they continue to be conducted for private profit in small ones it sometimes can, where the human relations are good. Social ownership will not of itself put matters right, as the experience both of the nationalised industries and of Co-operative employment abundantly shows Social ownership is only half the battle the other half is real participation by the workers in control — not only at the top, but at every level from the work-group upwards. By participation I do not mean merely consultation I mean real control This is necessary, not only for the sake of its effects in making the workers more conscious of their responsibility for high productivity, on which the standard of living must depend, but also because it is impossible to have a really democratic society if most of the members have to spend most of their lives at work under essentially undemocratic conditions. What a man is at his work he will tend to be also in his pleasure and in his activities as a citizen. Industrial democracy is therefore an indispensable part of social democracy - that is, of Socialism Productivity and the Standard of Living That the possibility of maintaining a satisfactory standard of living and adequate social servic es to protect the individual against the contingencies of life depends on high output should be self-evident, for even an absolutely equal distribution of incomes, after making due allowance for the portion of the current product that must be set aside for replacing worn-out.capital goods and for new investment, would have only a small effect on the standard of living of the majority of households.* In the past, it was possible for social reformers to advocate that social services should be financed by taxes on the wealthy and higher wages paid, at least in part, at the expense of profits To-day, in view of what has been already accomplished, what can still be done in these ways is narrowly limited, for though profits are high a large part of them is not available for consumption but is needed for investment in capital goods in order to keep our industries efficient and responsive to changing demands It does not of course follow that the sums needed for this purpose should be allowed to be appropriated by private persons merely * By equal distribution I here mean of course equal as between adults with smaller allocations for juvenile earners and with proper dependents' allowances for children and young persons not at work 26

because they own the assets of the businesses by which these profits are made. Indeed, as socialisation of business assets proceeds this form of appropriation will progressively disappear But public ownership of such profits will not render them available for consumption when they are needed for investment, and for as far ahead as we can see the need for investment is likely to remain high, both because we have big arrears to overtake and because the pace of technical change is likely to continue to be rapid. Improved standards of living must therefore come mainly out of higher production. Indeed, unless we keep up a high rate of investment we shall not be able to maintain even the standards of living we possess now; for in face of intensified competition in the international market in which we have to sell our exports and buy our imports we shall need at the least to keep pace with the rise of productivity in the countries which are our chief competitors - notably Germany, Japan, and the United States. Great Britain has lost the favoured position in the world market that it used to enjoy when, aided by cheap and abundant supplies of coal - which was then the key material - it profited by being first in the field in the Industrial Revolution and was able to stimulate demand for its export both by its imperial position and by having a large surplus of capital for investment overseas Nowadays, competition in efficiency takes place on more equal terms between the leading countries , and the ability to supply capital for overseas has passed mainly to the United States - for a country can in effect export capital only if there remains a surplus on its balance of payments after paying for imports and such other current charges as it has to meet Great Britain, therefore, has to depend on increasing productivity for improving, and even for maintaining, present standards of living This means that the working classes can no longer afford to regard high productivity and low costs of production as exclusively the employers' business, and their own role as simply that of extracting as high wages and as good conditions as they can from their employers, and of demanding, by political action, improved social services to be financed mainly by taxing the rich. It is to their own interest - indeed, it is of vital importance to them as a. class - that the national product shall be as large as possible. This means both that they need to use their political power to insist on proper organisation and planning of industry, and also that they need to use their industrial power to bring about better organisation of productive processes and factory relations, so as to eliminate the inefficiencies that necessarily arise when managements and workers are pulling in opposite directions. Responsibility and the Worker This brings us back to the question how far it is psychologically possible or socially desirable for the workers and their organisations to accept any sort of responsibility for the efficiency of profit-making industry. 27

Psychologically, any such notion encounters very strong resistance, both rational and irrational 'Why should I work harder, or produce more,' says the Socialist workman, in order to swell my capitalist employers' profits?' That is the rational objection, and with it, over a much wider field, goes the non-rational resistance to a change of traditional attitudes which rest on the long experience of exploitation to which the workers as a class have been subjected Socially, too, there are powerful arguments against collaboration, because it is liable not only to destroy the fighting spirit of the Trade Unions but also to break up class-solidarity and put in its place a loyalty to the particular firm which unscrupulous employers can use as a means of undermining Trade Union influence. The Conditions of Responsibility These arguments are so strong as to be conclusive against collaboration, save under certain indispensable conditions The workers as a class cannot properly be invited to collaborate on any terms which envisage an indefinite continuance of the toll levied on their labour by profit-making employers or shareholders, or the continued private appropriation of that part of their product which is needed to finance new investment. They need to be assured that the toll levied on labour by the claims of ownership will be brought to an end as speedily as possible and that immediately a beginning will be made with the transfer of profits needed for investment to public ownership. We have seen already how, by means of the abolition of large inheritances, the ownership of existing capital assets could be transferred to the public by stages not too prolonged. Side by side with this gradual transfer, the State could begin at once to assume public ownership of that part of profits - or of a part of the part - that is needed for new investment. This could be done by (a) statutory limitation of dividends - that is, of the part of profits that can be paid out to shareholders as incomes, (b) statutory allocation of a share in profits to a capital fund which would become at once public property and, if invested in the business, would carry shareholding rights to be exercised by public nominees. The public would thus acquire holdings of capital in what are now private enterprises by a double process - through the lapsing of shares to it at the owners' deaths and through the new shares to be created out of profits placed to reserve By rapid stages private ownership ofjoint stock enterprises would be extinguished they would become public property, and the State would be free to make what arrangements it might think best for their future conduct It could, for example, sell or lease some of them to the Consumers' Co-operative Movement, convert others into Producers' Co-operative Societies, and arrange for others to continue as publicly owned joint-stock companies It could amalgamate businesses into larger concerns where this" seemed likely to increase efficiency, but it would be under no necessity to set up huge organisations except where the technical conditions required them The outcome would be a highly valled 28

and flexible system of socialised ownership and control, which would not preclude leaving as many small enterprises as might be considered desirable to continue under private ownership and control, subject to due provisions to enswe good working conditions and compliance with planning requirements.

Given a clearly defined Socialist programme of this sort, I do not see why the workers should not be prepared to collaborate with the dying capitalist under the control of a Socialist Government pledged to carry it through to the end. There remains, however, the obvious difficulty that under our political system no Government can be sure of remaining in office for more than five years, and that accordingly the carrying out of the programme might be broken off short by the return of the Conservatives to power after an election victory. To be sure, this difficulty applies to every attempt to advance towards Socialism by non-revolutionary means it is part of the price we pay for preferring parliamentary government to dictatorship under a one-party system. There is no doubt that

most people in Great Britain do prefer parliamentary government, and the Socialist who wishes to see his ideas carried out has to proceed on that assumption. This, I agree, makes it much more difficult than it would be if continued office could be assured to persuade the workers to modify their traditional attitudes indeed, they cannot fairly be asked to modify them in any way that would reduce their ability to resume their fighting posture in face of any attempt by a Conservative Government to undo the achievements of its predecessor. This means that any collaboration that can be advocated under present conditions must be carefully safeguarded so as to preserve, and where possible to increase, Trade Union power. Towards Real Workers' Control This I believe to be entirely practicable, provided that the policy receives the full backing of a sympathetic Labour Government - but not otherwise. What it involves is, first, that the Trade Unions shall set out deliberately to extend the area of collective bargaining to include much that

employers still regard as belonging to the sphere of 'managerial functions' and therefore outside Trade Union competence, and secondly that they shall use this extension to transfer to the workers, under Trade Union supervision, certain of the functions of workshop discipline and organisa-

tion that are at present in the hands of foremen and supervisors appointed by the employers to order the workers about. Under this second head I have in mind the replacement of foremen by elected supervisors chosen by the workers themselves from among properly qualified candidates and the substitution, in suitable cases, of collective contracts under which groups of workers will undertake to carry through a particular job, or series of jobs, at a collective price, making their own arrangements for the organisation of the work and sharing the proceeds in accordance with rules drawn up by the Trade Unions to which they belong. 29

The effect of these changes would be to throw upon the workers res-, ponsibilities which they would exercise, not jointly with nominees of their employers, but by themselves, under arrangements negotiated by their Trade Unions with the employers and their associations The transfer of functions to the workers, far from undermining their collective power, would add to it, and would provide the foundation for extending their authority into further fields. Such arrangements could, and should, operate both in nationalised industries and in those remaining in private ownership or in transition from private to public ownership. They would constitute the reality of' 'workers' control' where the putting of a few Trade Union nominees on National Boards would give only the appearance of it. In-

deed, I feel sure that Trade Union representation on National Boards can be desirable only after a measure of real 'workers' control' has been established in this more real form - if even then. *

The Danger of Stabilising Inequality I have written this pamphlet in the belief that since 1950 Labour's official leadership has shown clear signs of not knowing how to make a further advance towards Socialism and perhaps even of not much wanting to Certainly some Labour Party leaders, notably Herbert Morrison, have made no bones about saying that what is needed now is a pause for consolidating what has been set on foot rather than a venture into new projects. I do not agree with this view, partly because I do not believe there is any satisfactory halting place between a mainly capitalist and a mainly Socialist economy, but also because I am afraid that the effect of what has been done, if we halt at the point we have reached, will be to establish a new class-system rather than to clear the road for a further advance to-

wards a classless society. We are in danger of coming to regard large salaries, titles for Trade Union and Co-operative leaders, and the control of industry and the workers by highly paid administrators imposed from above, not as necessary evils of transition, but as right and proper elements in the new society we are attempting to create. We are in danger of accepting 'reasonable' profits and the maintenance of capitalist operation as legitimate for the major part of industry, provided only that the Government holds certain very broad powers of planning and control - powers which, under such a system, it is very difficult to use effectively in any matter upon which the capitalists are not prepared to 'play ball'. We are in danger of failing to carry through the major reorganisation and large investment programme which many of our industries need because capitalist insistence on profit-taking, which provokes workers' insistence on higher wages, does not leave enough resources for capital development or make it possible to guide investment into the right channels. Our Socialism badly needs, I think, a 'new look', based on a fresh *For a fuller discussion of this issue see my recent book, An Introduction to Trade Unionism (Allen and Unwin, 1953)

30

angle of vision. I can sum up what I have been trying to say very briefly in the following propositions A Summing Up We need 1. a forthright attack on economic inequality based on the ownership of capital.

The best approach to this is by the abolition of inheritance beyond certain fixed limits, subject to such transitional alleviations as may seem to be desirable.

2. a no less forthright attack on social inequality This involves abandoning

the practice of handing out titles on any account, abolishing the House of Lords, and ceasing to create a new class of very highly paid administrators in the nationalised services.

3 a real attempt to diffuse economic responsibility, especially by extending the

range of collective bargaining and by transferring managerial functions at the workplace level to groups of workers acting under rules established by Trade Union bargaining.

4. a rapid advance towards greater educational equality, especially through

Comprehensive Schools and greater attention to technical and manual education for those whose bents lie that way.

5. greater attention to means of enabling elderly people to remain at work, and disabled or handicapped people to receive better rehabilitation, education and train-

ing, both in order to increase production and thus raise living standards, and because such measures will increase happiness.

6 limitation of dividends and compulsory allocation of part of profits to new capital which will become the property of the public, and not of the shareholders. 7. extension of public ownership and control of industry not only by further measures nationalising entire industries or concerns but by the progressive taking over of shares and direction through inheritance taxation and the creation of public shareholdings out of profits.

Socialism - or what else? There will, I am sure, be many objectors to the new programme outlined in this pamphlet. Some who regard themselves as Socialists will object to it on the ground that it is bad electioneering. To them I answer that I do not care if it is-for the time being. I am a Socialist and a believer that Socialism means, above all else, a classless society. I am not in the least interested in helping the Labour Party to win a majority in Parliament unless it means to use its majority for advancing as fast as is practicable towards such a society. I do not expect a majority of the electorate to agree at present with what I have said, for the simple reason that it differs from what they have been used to hearing. For the same reason I do not expect a majority even of the active leaders of the Labour Party to agree, for it is not what they have become used to saying. For a long time now, many of them have given up talking Socialism and have been talking instead about nationalisation and the Welfare 31

State. They have now, thanks to the enterprise of the Labour Government between 1945 and 1950, got nearly as far as they can go along these lines, until they set about doing two other things as well - smashing the class-system by a direct attack on property rights, and putting real responsibility into the hands of ordinary people. It took a considerable time and a great deal of apparently fruitless effort to get the working-class movement solidly behind the programme which the Labour Government carried through between 1945 and 1950. It will take a great deal of effort to get similar support for a new programme that will carry us on towards Socialism. Therefore, the sooner we begin on this essential task of education and propaganda, the less long shall we have to wait for its results The alternative is to rest content with what has been achieved, and to give up trying to establish a Socialist society. That, I fear, is what many who continue to call themselves Socialists are really minded to do, sheltering their apostasy behind the assertion that the majority of the electors could not be induced to vote for it. But what is the use of winning an election, except as a means to an end ? To win an election without a policy is the surest way of losing the next, and of spreading dismay and disillusionment among one's supporters. If the end is no longer Socialism, but something else - what else ? If it is still Socialism, let us tell the electors frankly how we propose to advance towards it. NOTE. I have not discussed Labour's international policy. If I did, I should need to say far more about it than I could compress within the limits of a single pamphlet covering home policy as well. I propose to deal with the all-important international aspects of Socialism in a second pamphlet.

32

WHAT IS WRONG WITH THE

TRADE UNIONS? G. D. H . COLE

FABIAN

TRACT

301

ONE SHILLING AND SIXPENCE

G D H COLE is Chichele Professor of Social and Political Theory at Oxford and President of the Fabian Society

FABIAN TRACT 301

This pamphlet is based in part on a series of articles which appeared in Tribune early in 1956

THE FABIAN SOCIETY,

11, Dartmouth Street, S W 1

September, 1956

Note—This pamphlet, like all publications of the FABIAN SOCIETY, represents not the collective view of the Society but only the view of the individual who prepared it. The responsibility of the Society is limited to approving the publications which it issues as worthy of consideration within the Labour Movement

WHAT IS WRONG WITH THE TRADE UNIONS? G. D. H. COLE

1. THE WAGES QUESTION

T

O begin with, is anything wrong? If the only purpose of a Trade Union is to strike the best possible bargain on its members' behalf in the matters of wages, working hours, and physical conditions of employment, I do not think there is much amiss The present leaders of the Trade Unions, by and large, are competent negotiators and honest men who have found themselves during the past sixteen years—that is, since 1940,— in a position of unprecedented bargaining strength, but also in one of very considerable difficulty It has been within their power at any time, thanks to full employment, to exact higher wages and a shorter working week than they have actually attempted to secure, but in practice what they have secured has amounted to a quite considerable improvement in real as well as in money wages, a moderate reduction in the length of the standard working week, and therewith an improvement in overtime earnings Earnings Rise As compared with October 1938, the last pre-war year, average weekly earnings in the industries covered by the Ministry of Labour returns had risen by 242 per cent in April 1955, and wage-rates exclusive of overtime and piecework payments by about 145 per cent Actual hours worked had increased over the same period by rather under half-an-hour a week, but average hourly earnings had increased by 240 per cent—almost as much as weekly earnings— mainly because men, who are more highly paid, work more overtime than women or juveniles Of course, these increases in money wages have been largely cancelled by higher costs of living According to the official indices, the cost of living rose by about 30 per cent between 1938 and 1947 and, on a new basis of calculation, by about 50 per cent between 1947 and 1955—that is to say by about 95 percent in all These figures, I know, are seriously misleading, especially for the period 1938—1947 But even if the actual rise from 1938 to 1955 is put at well over 150 per cent, which I hold to be a fairer estimate, the increase in money earnings is still a long way ahead, and that in wage-rates only a little way behind.

2

WHAT IS WRONG WITH THE TRADE UNIONS ?

Another way of looking at the situation is in terms of the share of wages in the national product and in the total of personal incomes, excluding such elements as reserved profits The share of wages in the total national product of all kinds was roughly 37 per cent in 1938 and 392 per cent in 1954 It was highest in 1948, when it reached 40 per cent, and has since fluctuated between 38 7 per cent and 39 7 per cent, without any steady tendency either way In terms of their share in the total of personal incomes the wage-workers have done rather better Their share was 37 9 per cent in 1938 and 42 4 per cent in 1954—the highest point yet reached, though only a small improvement on the 41 6 per cent of 1948 What these figures show is that by both tests the main shift to the workers' advantage occurred between 1938 and 1948, and that since 1948 there has been no further advance in the workers' share.

Inflation Produces Restraint In face of this, is it possible to say that the Trade Unions have done a good job in recent years? Why have they not used their power to continue the advance in the proportion of total wealth-creation paid to the wage-workers? The main reason has been that the Trade Union leaders have been afraid that to press for higher and higher wages would involve an inflationary rise in prices and a crisis in the balance of payments that would make it impossible to pay for the foodstuffs and materials from abroad that are needed to maintain full employment In this I feel sure they have been correct, on the assumption that the economic system as a whole would continue to operate much as it actually does now For, as things are, higher wages and higher profits go together, and higher wages cannot be got at the expense of profits, but only on terms which lead to inflation and thus both increase living costs and decrease exports and the power to pay for imports There is a vicious circle, which can be broken only by a fundamental change in the economic system as a whole In fact, up to the present, the major part of increased productivity has been going, not into the spendable incomes of the dividend receivers, but into investment either out of the reserved profits of business or out of taxation used to finance public capital expenditure—for example, on houses, schools, roads, and other public services This expenditure is necessary—indeed, it ought to be much higher than it is if industrial equipment is to be kept properly up to date and social services are to advance at a satisfactory pace The Trade Union leaders are well aware that Great Britain cannot afford to fall behind in either of these respects, and that until we have put a great effort into mechanising industrial equipment and developing the capital equipment of the social services there cannot be much room for improving real wages, at any rate unless means can be found of preventing every wage-increase from being passed on to the consumer in higher prices But how, as matters stand to-day, can this be prevented? Not by Trade Union action, for the Unions have no control over prices Only by strict price-controls and prevention of monopoly practices, designed specifically to

WHAT IS WRONG WITH THE TRADE UNIONS ?

3

squeeze the profit-makers and explicitly limit dividends and keep down interest rates It cannot be done at all under the so-called ' free economy ' which the Tories have been trying to bring back since their return to office in 1951 Moreover, even if prices and monopolies were brought under effective control, the need would remain to invest, instead of spending on consumption, a very large part of the total product so that working-class, as well as other, spending would have to be held down in order to enable the British economy to bring its methods thoroughly up to date The great difference would be, not that the wage-earners could have much more to spend in the immediate future, but that the benefits of higher productivity, as they are achieved, could be passed on to the workers instead of being appropriated by capitalist investors through reserved profits, as they are at present Keeping Up the Pressure Trade Union leaders, whose business it is to have such facts as these in mind, cannot properly be blamed for not having pressed hard for the highest wages they could exact at the cost of letting inflation rip, for serious inflation would hit the workers a disastrous blow The leaders, however, cannot afford on this ground to refrain from wage-pressure that will at any rate prevent the workers' share in the total of personal incomes from actually falling off They have at least to meet any measures which threaten this—e g the Tories recent financial manoeuvres with equivalent wage-demands, and any failure to do this would soon lose them their members' confidence and lead to a rankand-file revolt I do not, however, feel that they can be charged, so far, with any grave failure on this account That is not to say that I believe the leadership of the Trade Unions to have been equally wise in other respects Subsequent sections of this pamphlet will show where I think it has gone wrong What I am saying in this opening section is that in respect of wages the Trade Unions have managed to hold up to now the substantial advantages gained during the war years, and could not have done much better than this unless there had been a frontal attack on capitalism as a system— an attack requiring political action of a drastic Socialist kind.

2. WHAT IS RIGHT WITH THE TRADE UNIONS

B

EFORE I begin discussing what I believe to be the shortcomings of the Trade Union movement I want to make clear that I have a deep admiration for its achievements No movement in the country elicits from its members anything approaching the same amount of devoted voluntary service or gets so high a proportion of its essential work done by volunteers who labour for it because they believe in it and without any prospect of personal advantage over their fellow-members Nothing that I shall have to say about the widespread apathy among Trade Unionists is inconsistent with this notable fact, on which the strength and vitality of the entire movement

4

WHAT IS WRONG WITH THE TRADE UNIONS ?

depend However well the paid officials serve their Unions—and the great majority of them are competent, hardworking and faithful servants of their members—the basis of Trade Union power is in the unpaid day-to-day service of the local activists who attend branch meetings, serve as shop stewards or committee members, and take the trouble to understand how their Unions work and to master the problems with which they are required to deal Most of these activists, I rejoice to say, are animated by loyalty, not only to their own Unions, but to the wider working-class movement as well They are Socialists as well as Trade Unionists, and play their part politically as well as on the workshop floor They have every reason to be proud of what they have achieved, and the shortcomings of which I shall have to speak are not at all their fault It is largely owing to them that the Trade Unions have been able so greatly to add to their power and prestige during the years since 1939, and I have nothing but praise for them Outstanding Achievements Trade Union officials too deserve on the whole to be congratulated on their successful efforts to improve the status and conditions of the organised working class My personal memory goes back not only to the bad times of the depression in the 1930s, but further to the years of ' Labour unrest' before the world war of 1914 Nowadays I occasionally hear young Trade Unionists, who have no clear memory of either of these periods, denying that there has been any real improvemnt in the condition of the workers, or even suggesting that it has got worse because of the increasing ' contradictions ' of capitalism What nonsense' Since 1914, and indeed since 1939, there has been an enormous improvement in the position of the workers, not only in respect of standards of living, but even more in social and economic status, and with this has gone an immense advance in Trade Union power and prestige What above all else has made these advances possible has been full employment, which has forced the employing class to treat the worker with much greater consideration for fear of losing his services and not being able to replace him, and has thus radically changed the character of workshop relations and the behaviour of managers and supervisors in their handling of human problems With this has gone a far-reaching change in the workers' own attitudes, for they are no longer haunted, as so many of them used to be, by the fear of unemployment and by the continual insecurity of their conditions of life They can now stand up for their rights with far less risk than used to be involved, and most of them are well aware of the change and know how much they owe to Trade Unionism for helping to bring it about Defending Full Employment It is precisely for this reason that there is so much talk nowadays, in reactionary circles, about' overfull employment', and so much desire to bring back a situation in which workers will once more be hunting for scarce jobs instead of employers hunting for workers, so that the old ' discipline' can be

WHAT IS WRONG WITH THE TRADE UNIONS ?

5

restored and the concessions that have had to be made can be cancelled in the interests of the exploiting classes But despite these desires, both employers and Government have so far hesitated, in face of the strength of Trade Unionism, to challenge it to direct combat, and have limited themselves to attempts to whittle away the workers' gains by such indirect means as the removal of food subsidies, the raising of rents, and the ' credit squeeze ' designed to restrict the demand for labour If the Trade Unions were to accept these indirect attacks without offering the most lively resistance, the champions of capitalism would soon seek to press them further and to shove the working class back to the inferior status and conditions from which it has begun to emerge The gains that have been made are still insecure their preservation depends on the maintenance of a fighting spirit in the Trade Unions—on the absolute refusal to give up what they have won and dogged determination to use every chance of advancing to further victories This, however, cannot be achieved merely by pressing for wage-advances, for, as we saw, such claims, pressed too far, may help to destroy the very ' full employment' on which the Trade Unions' power so largely depends The Government's attempts to bring about a re-distribution of real incomes to the detriment of the workers need to be met by political as well as by industrial action—by carrying the Labour Party back to political power with a programme for maintaining full employment, reducing rates of interest, and curing the disequahbrium in the balance of payments by controlling imports and ensuring priority for those forms of expenditure, on both capital goods and consumers' goods, that are most useful socially and for the improvement of economic efficiency, whether or not they are also most profitable to the capitalist class. Industrial Responsibilities At the same time it is necessary to recognise that the standard of life in Great Britain depends absolutely on British industry keeping pace with .the growth of technical efficiency in other parts of the world, and that the workers however hostile they may be to capitalism, cannot afford to allow British industry to fall behind The Trade Union leaders, in stressing the need for the highest possible productivity, are not being false to their members' interests on the contrary, they are doing only what is indispensable to safeguard these interests, and they have a right to look for the fullest support in the campaign for higher output at the lowest cost compatible with good wages and conditions of work The workers cannot afford to ignore the fact that the crisis through which the British economy is passing is a real crisis that can be cured only by putting British industry in a position to sell the exports that are needed to pay for the imports without which full employment cannot be maintained or the standard of living be prevented from falling In such a situation there is no room for forms of militancy which, in making trouble for the employers, at the same

6

WHAT IS WRONG WITH THE TRADE UNIONS ?

time damage production and worsen Great Britain's position in the world market The Trade Unions have to look for ways and means of defending their members' interests that will not have this effect If the employers and the Government attack them, they have to fight back, but they must be at the same time ready to co-operate in measures designed to improve productivity and must avoid all forms of ' trouble-making' calculated to hamper British industry in its competitive effort This means that, in the present situation, it is necessary to attack capitalism politically, rather than industrially, in order to get a Government that will put the working-class claims first, will break down the capitalist monopolies that hamper production, and will prevent scarce capital from being frittered away on luxury output while urgent claims are left unsatisfied, Trade Unionism alone cannot accomplish such tasks, but it can, if it will, powerfully reinforce the Labour Party as an instrument for their achievement, both by a much more intensive effort at the political and economic education of its members and by insisting that the Labour Party's programme shall be stiffened up for a much more determined advance towards Socialism and planned control of the economy as a whole

Tory-voting Trade Unionists The need for such a campaign is evident in view of the fact that in recent General Elections well over one-third of the manual workers who have cast their votes have voted for Conservative candidates No one knows how many of these Conservative working men and women are Trade Unionists, but clearly a great many of them must be, and it is no credit to the Trade Unions that such a situation should exist and so little attempt be made by the Unions to correct it Of course, many more Trade Unionists vote Labour than vote Conservative, and the Trade Unions do, at election time, make some attempt to throw their organised weight on the Socialist side But between elections they do far too little to educate their members politically, and even at election time they fall a long way short of mobilising their full resources for the political struggle This is folly, from their own point of view, for the maintenance of the great advances they have helped to bring about depends fully as much on how the country is governed as on anything they can achieve by industrial bargaining or strike action In a later section of this pamphlet I shall show how tenuous the existing links between the Trade Union rank and file and the Labour Party are and shall suggest ways of strengthening them The main answer, however, must be in terms of a great Trade Union campaign of economic and political education, and in failing to launch such a campaign the Trade Unions, despite the immense services they have rendered to the workers, are showing a disastrous lack of foresight Only an educated democracy can effectively exercise power, but it is no less true that an educated democracy is needed for winning power and for preventing the great gains of the past two decades from being frittered away.

WHAT IS WRONG WITH THE TRADE UNIONS ?

7

3. APATHY AND CENTRALISATION

T

HERE are at present about 9½ million Trade Unionists, of whom more than 8 million are affiliated to the Trades Union Congress, as compared with 6 million and 4¾ million in 1938 The number of Trade Unionists has thus increased by more than one half, whereas the number of Trade Unions has been falling sharply—in the T U C from 216 in 1938 to 183 in 1955 Individual Unions have been getting bigger, as a consequence both of amalgamations and of successful recruiting of new members Over the same period, Trade Union bargaining has been getting more centralised, as well as spreading over a wider field

Branch Interest Lost In most industries to-day, wage-rates and general conditions are settled by nation-wide bargaining or arbitration, which applies to large masses of workers This type of bargaining is necessarily done by quite small groups of full-time national officials and executive members, so that the local branches and shop organisations of the workers have only a remote part in it, though the members may be called upon to vote for or against a particular agreement, either directly by referendum or through some sort of delegate conference The result is that the average Trade Union branch or district has much less say than it used to have in bargaining about such matters and has come to deal much less with the fixing of wage-rates and general working conditions than with applying national agreements to local circumstances and traditions Such application, moreover, has to be done largely in each separate establishment, through shop stewards and shop committees, rather than in a whole town or district so that the branch or the district committee has lost power both to the centre and to the workplace organisation—above all, in engineering and in coal-mining These changes tend to make branch meetings both less important and less interesting than they used to be when bargaining was largely local and a go-ahead branch or district committee could affect local wages and conditions much more directly than it can to-day The rise in membership has had another important effect Trade Unions, when they had fewer members, consisted mainly of those workers who were keener and more active than the rest But nowadays a great many workers belong to a Trade Union not because they are keen on it but because they have to in order to get or hold their jobs It is a natural consequence that the proportion of apathetic members has increased Devolution the Answer Thirdly, it must not be forgotten that Trade Unions, like many other bodies, have to face the competition of many more rival attractions than were open to their members in past years A Trade Union branch meeting needs to be more interesting and important than formerly in order to induce more than

8

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a small number of members to attend it, but it is not at all easy to make such meetings interesting when they are dealing only with routine questions and there is nothing special afoot It is so easy to argue that it will make no difference whether one attends a particular meeting or not, and the habit of not attending, once formed, is not easily broken Moreover, the very acceptance of Trade Union membership by most employers as normal and natural makes it seem to many Trade Unionists less necessary to put in an attendance in order to manifest their solidarity with their fellow-workers. This makes it vitally important to do all that can be done to make branch meetings attractive, by cutting down sheer routine to a minimum and making them as far as possible social occasions for good fellowship as well as opportunities for free discussion and debate This, however, cannot easily be done unless there is really important work for the branches to do, and it therefore comes back to the need for more devolution of power and responsibility from central offices and officials to the rank-and-file members, and to the necessity of basing branches as far as possible on actual working units that have common problems to discuss and to resolve The General Unions Thus three factors have been operating together to increase apathy There are more members who are apathetic by nature, there are more counterattractions, and there is also less to attract even the less apathetic to attend branch meetings or to play an active pait in Trade Union affairs which seem to be largely beyond their influence In addition, the rise in membership has been greatest among the less skilled workers, who tend to take a smaller part in Union affairs than the skilled craftsmen There has been a prodigious rise in the membership of the two huge general Unions, which consist largely, though not exclusively, of the less skilled, and these Unions have exceedingly high lates of membership turnover—which means that members are continually passing in and out of them and that a considerable proportion of the members have no continuous interest in their affairs Moreover, in the General and Municipal Workers' Union especially and also in the general sections of the Transport and General Workers, branches often consist of highly miscellaneous groups which have little to discuss in common as compared with more homogeneous branches. This also makes for apathy, and for leaving it to the full-time officials to do the job without active participation by more than a tiny fraction of the rank and file Remedies for Apathy How far, we need to ask ourselves, are these tendencies unavoidable, and how much can be done to counteract them9 It would be quite impracticable to propose that nation-wide bargaining should be given up and that there should be a return to purely local bargaining about wage-rates and general conditions, for national bargaining has undoubtedly done much

WHAT IS WRONG WITH THE TRADE UNIONS ?

9

to level up wages and conditions in the worse-paid areas, and employers are now nationally organised on a scale that makes purely local bargaining impossible What is needed is not to undo national bargains, but to give clearer recognition to the importance of workshop bargaining over the implementation of national agreements and the development of collective negotiation in each particular establishment, within the general terms of such agreements—in other words, fuller recognition of the powers and functions of shop stewards and Trade Union workshop and works committees, and also much greater representation and influence to such bodies in the control of Trade Union policy Shop stewards, especially in engineering, have a good deal more recognition in the Trade Unions than they used to have, but still not nearly enough—and there are still not a few industries in which they hardly exist As for the second cause of apathy—the enrolment of those who would not have joined a Trade Union at all unless they had been virtually compelled to—the remedy must clearly be sought in much greater efforts at elementary Trade Union education and training in Trade Union work, especially of new recruits Many Unions are doing a good deal more than they used to in this respect, but most still lag a long way behind Every Trade Union member ought to be strongly encouraged, even if he or she cannot be compelled, to go through at least a short course of learning both about his Union and its problems and about the wider movement of which it is a part There is no other way either of ensuring that enough competent persons will come forward to do the work the Union needs or of making the Union work democratically Nor is there any other way of preventing a sectional minority from getting control if it sets out to do so Much more Trade Union education is a vital need—more vital than ever now that the Unions include a higher proportion of the entire working class

Encouraging Participation The third cause of apathy—the rise of the huge general Unions— presents a special problem which can be met only by much more encouragement for members of these Unions to play an active part in their work This requires big changes in internal Union organisation—the breaking up of oversized branches into smaller, more homogeneous units, more self-government for the main sections of the membership through trade or industrial groups, and less power in the hands of full-time officials in relation to local and workshop affairs Broadly speaking, however, the Trade Union leadership, instead of encouraging such changes, opposes them for fear of losing its centralised control over the rank and file Trade Union democracy is opposed on the ground that it might add to Communist and left-wing influence I do not, of course, mean that Trade Union leaders wish their members to be apathetic I am sure they deplore the apathy as much as I do Nevertheless, they are not prepared to attempt to cure the evil by giving

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greater power to shop stewards or works committees, because they are afraid that this might open the road to control by irresponsible minorities that are out to make trouble rather than to improve the efficiency of the Unions as instruments of collective bargaining The leaders would be only too pleased to see the members more alert and active if they could be relied on to be sensible as well, but, as matters stand, they are too fearful of the consequences of diffusing power more widely to be prepared to take the risk Yet, unless it is taken, I do not believe there is any way by which the apathy can be overcome This is so important an issue that I propose to devote most of my next section to discussing it in greater detail

4. THE FEAR OF COMMUNISM EAR and hatred of Communism and of anything that can be. plausibly F associated with it are an occupational disease of modern Trade Union and Socialist leadership. I say this, not as a Communist or a ' fellow-

traveller '—for emphatically I am neither—but because I am sure this attitude is the most disastious obstacle to necessary and practicable reforms in the structure and working of Trade Unionism under the conditions of to-day

One great effect both of the centralisation of collective bargaining and of the increase in the proportion of apathetic members has been a growth of power in the hands of full-time officials and of national executive members who spend a large part of their time on Trade Union work It is in man's nature—in that of Trade Union leaders as well as of other men—to love power and to be reluctant to share it with others more than they must Trade Union leaders who enter into great nationwide bargains on behalf of their members accept therewith a responsibility to employers that these bargains will be kept, and therefore become responsible for disciplining their members in order to enforce obedience Thus, national Trade Unions become, as their power grows, more and more agencies for imposing discipline on their members rather than for responding to such of their members' demands as come from activist groups and minorities and not from the membership as a whole As most forward movements begin as minority movements, or at least as movements of particular sections, this means that rank and file initiative is sevsrly discouraged, and that disciplinary action is readily taken against discontented branches or groups Branches are dissolved and are re-formed under 'safe' leadership, and the apathetic majority is brought in to reduce the active minority to order The use of these disciplinary powers cannot be altogether avoided, for some discipline there must be if the Union is to do its job But their use

WHAT IS WRONG WITH THE TRADE UNIONS ?

11

tends to be pushed much too far when the leaders come to be dominated by the notion of a Communist conspiracy to overthrow them, and to see every revolt against their policy as an expression of this conspiracy It is of course true that Communists, constituting a small but very active minority in the Unions, do their best to take advantage of the widespread apathy to get themselves elected to key positions and to get their resolutions passed at meetings which only small minorities attend. But it is none the less disastrous to meet such attempts by excluding Communists from office or by shutting down branches in which they get the upper hand—and much more disastrous to smear as a Communist or fellow-traveller everybody who ventures to cuticise the attitude and policy of the official leadership For this results either in killing every sort of progressive initiative in the Union or in perpetual troubles and a most dangerous lack of communication between the leaders and the active members on whom the real strength of the Union is bound to depend The remedy for Communist infiltration is not to repress all rank-and-file initiative in order to defeat it, but to encourage other forms of initiative and to increase the proportion of active members by better training and by giving them more responsible Trade Union tasks.

Neglected Functions No organisation, whether it be a Trade Union or of any other type, can be properly called democratic unless a considerable proportion of its members plays an active part in its affairs, or unless it accepts a reasonable amount of responsibility for equipping them to do so Similarly, no organisation is truly democratic unless it does its utmost to encourage active participation by offering opportunities for responsible tasks to a sufficient part of its membership to ensure that, if the national leadership were put out of action, its groups would continue to operate effectively and a new leadership could be speedily recruited from its ranks I very much doubt whether the Trade Unions of to-day are meeting these tests as adequately as were the Trade Unions of a generation or of two generations ago, despite the improvements that have taken place both in standards of living and in general education This is partly because there is now more opportunity for clever young people to rise out of the working class, and also because there are more rival interests and activities competing with the Trade Unions But it is, I feel sure, also largely because Trade Union leaders have paid much too little attention either to Trade Union education and training or to the need to diffuse power and responsibility instead of allowing them to become concentrated in fewer and fewer hands This neglect, in turn, has been partly an outcome of the leaders' desire for power, but also partly of their exaggerated fears of Communism and of ' leftism ' in general It is a most dangerous situation when a Trade Union becomes more concerned with disciplining its members than with encouraging them to think and act for themselves. Such discipline is, in some degree, inseparable

12

WHAT IS WRONG WITH THE TRADE UNIONS ?

from power, for clearly agreements, once made, ought to be honoured unless new circumstances arise to render them invalid Discipline, however, is properly acceptable only where those who are subjected to it are allowed a fair chance to push their views and projects without being held up at the very outset by charges of ' disloyalty ' it becomes intolerable as soon as the leaders come to regard the members as their property, whose only duty is to obey Why Unofficial Strikes? I feel sure that the prevalence of unofficial strikes in recent years is due largely to over-centralisation, which has brought with it long, roundabout processes of negotiation that are often intensely exasperating to the workers directly affected by them These processes can be used deliberately to delay consideration of real grievances, and are largely so used by bad employers when they dare so that, all too often, the men on the spot have to choose between striking without official support and allowing an employer to introduce some new practice to which they strongly object, or to dismiss a worker who has stood up strongly for Trade Union lights Employers attempt, more and more, to enforce their claim to refuse negotiations as long as a strike continues, and to tie the Trade Unions down to accepting this limitation on their members' rights, and Trade Union leaders are apt to be so fearful of left-wing influences in their Unions as to acquiesce in this employers' claim The answer must be sought in more decentralisation of Trade Union power, and not in making the Unions into bodies, one of whose main function is to keep their members in order for capitalists to exploit

5. TRADE UNION STRUCTURE

N what basis ought the workers to organise themselves in Trade Unions? O There are a number of alternative ways open to them and, in Great Britain, no one way has prevailed over the others There are craft Unions,

such as the United Patternmakers or the London Typographical Society, there are what may be called departmental or sectional Unions, such as the Associated Society of Locomotive Engineers and Firemen, which organises not only engine drivers but also firemen and cleaners—that is to say, all grades, less skilled as well as skilled, attached to the locomotive department, there are industrial Unions, which set out to organise together all the workers belonging to a particular industry, whatever their grade or degree of skill—for example, the National Union of Railwaymen, or the Shop, Distributive and Allied Workers, there are general Unions, such as the National Union of General and Municipal Workers, and the Transport and General Workers' Union, which are open to workers from any industry or trade, though in practice they do not enrol those for whom well-established Unions of other types effectively cater, and finally there can be Unions

WHAT IS WRONG WITH THE TRADE UNIONS ?

13

which actually attempt to unite the entire working class in a single Union— the One Big Union of which the American Industrial Workers of the World was once the outstanding example These are the main types, but not all Trade Unions can be clearly assigned to one or another of them For example, is the powerful Amalgamated Engineering Union to be regarded as an industrial Union because it is open to many kinds of workers, unskilled, semi-skilled and skilled, who work in the engineering industry? On the whole, yes but it must not be forgotten that the A E U also includes large numbers of engineers or various sorts who work in other industries and are attached to it because of the crafts they practice rather than because of the industry in which they work The A E U or rather the A S E out of which it arose, when I first knew it was mainly a craft Union enrolling workers from a number of kindred crafts it has developed gradually into something more like an industrial Union through opening its ranks more effectively to the less skilled machine-minders, but it still falls a long way short of including all engineering workers Many such workers belong to separate Unions, such as the Electrical Trades Union, the Amalgamated Union of Foundry Workers, or the United Patternmakers' Association and a high proportion of the less skilled, though eligible for the A E U , are actually members of either the T and G W U or the N U G M W , and in the railway workshops the A E U competes for members with the N U R Principles of Organisation It is tempting to suggest that, in order to avoid Unions competing for members, one principle or another ought to be adopted as a common basis of organisation This is the case in some countries, where there exists a central Trade Union Commission with power to decide to what Union each kind of worker shall be assigned Thus, in the Soviet Union, the industrial principle is adopted so completely that every sort of person employed in an industry is assigned to the Union catering for that industry, from the top technicians and managers down to the least skilled workers But in most countries, even where the central body has much more power than in Great Britain, uniformity of structure is carried much less far, even it the industrial form of organisation is quite widely used For example, nonmanual workers are quite often organised separately from manual workers, as here the Transport Salaried Staffs Association (formerly the Railway Clerks') is separate from the N U R , and it is common to find that, whereas in some industries the workers are organised on industrial lines, in others craft Unions confined to special types of skilled workers exist side by side with these more inclusive Unions In the United States for example, where the two rival central Trade Union bodies—the American Federation of Labor and the Congress of Industrial Organisations—have recently joined forces, the combined body includes both craft and industrial Unions— the latter drawn mainly, but not exclusively, from the C I O and the former from the A F, of L.

14

WHAT IS WRONG WITH THE TRADE UNIONS ?

Why do these differences of structure exist, and what is there to be said in favour of one or another basis of organisation? Historically, in most countries, craft Unions have been among the first to establish themselves— with the compositors very often taking the lead For highly skilled workers following a common craft or a closely related group of crafts can organise more easily than less skilled workers, and have a closer common interest to bind them together Employers find it harder to victimise bodies of highly skilled craftsmen, who cannot be easily replaced, than workers who have no such monopoly of skill Accordingly, as a rule, organisation begins among the skilled workers and spreads only later to the less skilled, and there have been in the past cases in which particular groups of skilled workers have done nothing to help the less skilled to organise, or have even opposed their efforts, in the hope of improving their own position by building up an effective monopoly of their particular kind of labour More and more, however, with the development of mass-production, there have come into existence large bodies of semi-skilled workers intermediate between craftsmen and labourers, and it has become indispensable for the craftsmen to make common cause with the semi-skilled in dealing with their employers—so that one craft Union after another has opened its ranks to less skilled workers and turned into something more like an industrial Union Sometimes, however, the craft Unions have put up a long fight before joining hands with the less skilled, and there remain to-day whole industries— notably building—in which the main basis of Trade Union organisation is still that of craft, with separate Trade Unions of carpenters, painters, plasterers, plumbers, and so on, loosely federated in a National Federation of Building Trades Operatives which negotiates for them all in some matters, but not in others

Craft Versus Industrial Unionism Wherever craft Unionism exists, it means that each employer and each employers' association is confronted not by one Union but by a number, which either negotiate apart or work more or less completely through a federation to which they delegate some of their powers As against this, the aim of industrial Unionism is to confront each employer and each employers' association or federation with a single body competent to bargain on behalf of all the workers employed This aspiration is seldom realised in full, for as we saw blackcoated workers and officials usually insist on maintaining separate organisations of their own Even in the coal mines there exists, side by side with the powerful National Union if Mineworkers, a separate body representing Colliery Officials, though the N U M comes a good deal nearer than most to being an effective industrial Union for all the manual workers concerned Why do skilled craftsmen, in so many cases, prefer to maintain separate Unions of their own? Largely because they are afraid that the less skilled,

WHAT IS WRONG WITH THE TRADE UNIONS ?

15

who are usually more numerous, will not understand their special claims or back them up when they demand the wage-differentials and the special working conditions which they regard as reasonable in view of their particular skills. In recent years wage-differentials have in many instances been considerably reduced, especially during the war, and the skilled workers are apt to feel that, with the less skilled pressing for higher basic wages, their claims may be set aside nor can it be said that they are entirely mistaken in this view It is a real moot point in many disputes whether the claims of the worst-paid workers should be given priority over those of the better-paid, especially in times of rising prices and above all under conditions of wartime scarcity It is not surprising that skilled workers who are still in a position to maintain their monopoly of a particular type of necesary skill tend to cling to their craft Unions—as, for example, the London Typograptical Society does, with its long tradition of closely knit organisation open only to skilled workers

Effects of Mechanisation The case for industrial Unionism is strongest in the industries that have been most invaded by mass-production, which tends to break down the barriers between the main bodies of skilled and semi-skilled workers and to confront the entire body of employees with huge employing concerns they can cope with only by uniting all their forces under a common control In America the workers in most of these industries never became effectively organised till the C I O , thrusting the older A F of L aside, adopted the method of industrial Unionism and compelled the great capitalist businesses to accept collective bargaining, against which they had previously stood out As more industries resort to highly mechanised methods, industrial Unionism is likely, here too, to gain further ground But it is unlikely, from this cause alone, to oust the other kinds of Unionism altogether There is another factor to be taken into account In as far as Trade Unions are simply agencies for collective bargaining about wages and conditions of employment, the only relevant consideration in deciding what basis of organisation is to be preferred is what will most strengthen the workers' bargaining position, and there may well be cases in which, though industrial Unions could serve the majority of the workers best, craft Unions will be to the bargaining advantage of particular skilled groups If, however, the workers are aiming at getting any sort of ' workers' control' or share in the management of industry, they evidently need a common organisation covering all those employed in the same establishment and in the industry to which the establishment belongs so that industrial Unionism, or the nearest practicable approach to it, is clearly to be preferred. I propose to discuss this question of workers' control in a subsequent section of this pamphlet; and I shall accordingly say no more about it here than that I regard it as an indispensable ingredient in the making of a democratic Socialist society, and therefore wish to see the Trade Union movement develop, as

16

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far as possible, a structure through which an advance towards workers? control can be effectively made. As for the general Unions, of the type represented by the T and G W and the N U G M W , the reason why they have developed on so vast a scale is plain They are largely a by-product of craft exclusiveness, for where the skilled workers were not prepared to admit the less skilled workers to their own Unions, the less skilled, if they were to organise at all, could do so only in separate Unions, and there was a strong case for making these open to a wide range of occupations in preference to setting up separate ' labourers ' Unions in each industry or occupation Such separate Unions, as the chequered history of Unions of Builders' Labourers shows, cannot easily maintain themselves alone They need large numbers and variety, in order that each group may be able to rely on the help of others when trouble comes As industrial Unions develop, the scope for general Unions becomes less, but as against this the growth of mechanisation brings into existence large bodies of machine-workers who can shift fairly easily from one industry to another—and the general Unions can cater most easily for workers of this type, as well as for the large mass of workers in scattered industries not clearly enough defined to maintain Unions of their own The general Unions are accordingly likely to remain very important A Single General Union What is absurd is that there should be two of them, competing over practically the whole range of industries and getting continually in each other's way What I should like to see is the splitting oft by agreement of the Transport Workers' section of the T and GW. from the rest, and the amalgamation of the remainder with the N U G M W to form a single Union open to all workers for whom no distinct effective craft or industrial Union exists The transport workers do not appear to be too happy inside the huge amorphous Union of which they form the central group, and there seems to be a good case for an industrial Union including all branches of transport except the railwaymen and perhaps the seamen I shall no doubt be strongly criticised for daring to suggest so drastic a change in the established Trade Union structure, but my task in this pamphlet is to write what I believe without taking too much care not to tread on important persons' toes

6. TRADE UNIONISTS IN POLITICS UT of the 9½ million Trade Unionists, roughly 5½ million belong to the O Labour Party as political contributors through their Unions' political funds, but only a tiny fraction of these contributing members plays even

the smallest further part in the Labour Party's affairs or receives any account through his Union of what the Labour Party is doing, either nationally or locally. Of course, a substantial number of Trade Unionists join the

WHAT IS WRONG WITH THE TRADE UNIONS ?

17

Labour Party as individual members, in addition to paying their Union levy, and these members can play as active a part as anyone else in the Labour Party's affairs, if they wish to do so But it remains true that the Labour Party membership of the great majority of affiliated members is purely nominal, and that most Trade Unions make no attempt to interest the contributing members in Party affairs or to give them any control over Party doings. Voting at Conference Trade Union branches seldom discuss political questions or, even if they are affiliated to Divisional Labour Parties, receive any regular reports from their delegates to such bodies, and, at the centre, the Labour Party's relations with the Trade Unions are almost wholly a matter of dealings with Union head offices and national executives, with practically no contacts with the Trade Union rank and file It is not uncommon for the voting of big Trade Unions at Labour Party Conferences to be settled by Union executives without any attempt at consulting their members so that a huge block vote may depend entirely on the opinions of a few men chosen as leaders on mainly unpolitical grounds In other cases, Trade Union delegates to the Labour Party Conference are specially elected and hold a preliminary meeting as a delegation, before the Conference assembles, in order to decide how to cast the Union's vote, which they may either cast as a block vote, ignoring any minority within the delegation, or divide so as to reflect the actual division of opinion among the delegates. But even, this, though more democratic than leaving the whole matter to be settled by the Executive, does not achieve any real consultation of the mam body of contributors to the Union's Political Fund Some people argue that this does not matter, or even that it is a good thing because it allows the weight of a Trade Union to be thrown solidly into the scale on controversial issues instead of being scattered so as to express differences of opinion Trade Unions, it is said, owe their power to their ability to act as solid bodies—monolithically, to borrow a favourite Communist term In industrial matters this is no doubt often necessary one cannot wish to have half a group of workers striking, and the other half staying at work In political matters, however, there is usually no good reason why a Trade Union should wish to act mono--thically, so as to suppress differences of attitude among its members, or why control of its political activities should be concentrated at the centre, so as to allow the ordinary member practically no voice in what is done in his name More Political Discussion Is there a remedy for this unsatisfactory state of affairs7 The situation could be made much better if most Trade Unionists who pay their Union political levy would also become individual members of their local and divisional Labour Parties and attend their meetings. A bigger Trade

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Unionist membership in the local Labour Parties would add greatly to the influence of these bodies and would much strengthen their claim to an effective voice in controlling the Party and to a larger representation on the Party Executive. This, however, is not to be hoped for save as the outcome of a successful attempt to reduce the apathy of Trade Unionists in relation to their own Union affairs, for the apathetic Trade Unionist, even if he is a political contributor, is not very likely to become a Labour Party activist. Short of that, it would be possible for Trade Unions to arrange for special branch meetings for the discussion of political questions At such meetings, the branch delegates to the local Labour Party would report on its work, and matters of Party policy, national as well as local, could be freely discussed It would not be easy, at any rate at first, to secure a large attendance at such meetings but even smallish attendances would serve to bring the local Trade Unionists into much closer relations with the Labour Party than exist at present, and they could be used as opportunities for elementary education in political problems of special concern to the Trade Unions, as well as over a wider field There could also be inter-union local meetings for political discussion and small branches" could join forces for political meetings.

Channels of Communication If this were done on any scale, it would become necessary for the Trade Unions to establish machinery for political discussion and decision at higher levels Resolutions from political branch meetings could be sent up for consideration at regional and national levels, and Trade Unions could begin democratically to work out political policies and programmes of their own to be put before the Labour Party, not as the fiat of a few top leaders, but as the considered opinion of the active members Trade Unions would be induced to take politics more seriously and to take greater account of the members' views Indeed, without something of this sort, tension is bound to arise between the Trade Union leadership and the local Labour Parties, which, as their members do most of the work for the Party, do not like being overridden at the Party Conference by the block votes of a few big Unions whose members have never been consulted about how their votes are to be cast It would become impossible for Trade Union leaders to look down with contempt on the Local Parties as expressing the whims of irresponsible intellectuals and trouble-makers, and the entire Labour Party would benefit by getting the Trade Unionists to participate on the ground floor, instead of coming in for the most part only at the top level, and even there only in the most indirect and unrepresentative way. The difficulty, of course is not only that many Trade Union leaders prefer the political influence of the Unions to be concentrated in their own hands, but also that many of the leaders of the Labour Party suffer

WHAT IS WRONG WITH THE TRADE UNIONS ?

19

from the same disease of oligarchy, which, as we saw, besets all large organisations The local Labour Parties themselves are not so popular at Transport House (South Block) that it wishes to see them reinforced by much more local Trade Unionist participation and support From the standpoint of oligarchs democracy is always a nuisance, unless it is reduced to the most formal terms of majority control, so as to allow minorities, the bearers of new ideas, to be nipped in the bud Therefore, only Trade Unionists who want to increase active rankand-file Trade Union participation in political affairs can be looked to as possible makers of the change, by insisting on their right to discuss political issues in their branches and to receive regular reports on the Labour Party's doings, national as well as local Until they do this, the Labour Party's association with the Trade Unions will continue to rest on undemocratic foundations and the main body of Trade Unionists will remain politically uneducated, to the grave damage of the Labour Party as a political force and of the Trade Unions themselves as bodies whose functions, in the world of today, necessarily extend a long way beyond purely industrial affairs

7. THE QUESTION OF WORKERS' CONTROL TO-DAY, most Trade Union leaders neither believe, nor even profess to believe, in ' workers' control' Most workers, they say, show no sign of wanting it, and, if they did, they would not know how to set about it Both these contentions are, of course, largely true The demand for workers' control comes only from a small minority, and even this minority is often not at all clear what it wants It is also true that, with the advance in the scale of production and the rapidly growing application of science to industry—up to the extreme point of automation— management becomes more and more a highly specialised and exacting profession, far beyond the capacity of the average operative at the bench or machine That is why societies are heading towards a ' managerial revolution,' which is transferring power from mere owners of capital to scientifically trained wizards and higher technicians, as the farsighted Saint Simon prophesied would happen a good century and a half ago At present, these wizards are in the service of the propertied classes, into whose higher ranks they rise by virtue of their skill Under modern conditions of production society cannot do without them, but it can by socialisation compel them to change their allegiance and to become the servants of the people instead of its masters Restraining the Technocrats Socialisation is needed, not only to put an end to the private appropriation of surplus value, but also to compel the technocrats to take proper account of the rights and interests of those who work under their orders.

20

WHAT IS WRONG WITH THE TRADE UNIONS ?

The ordinary workman cannot control industry in. the sense of planning either what is to be produced or how production is to be organised He does not know enough, and cannot, for this to be possible in a society in which new methods of production are continually being discovered, and any country that allows its technical efficiency to lag behind will be unable to hold its position in the world market, or to sustain a satisfactory standard of living for its people But, although the ordinary worker cannot know enough to be in a position to say what should be produced or what new techniques are called for, he does know a great deal about where the shoe pinches when methods and processes are changed without his consent Workers' control can mean nothing unless it begins on the workshop floor, in relation to matters which the ordinary worker can understand and which affect his working life Joint consultation at the workshop and factory levels is a step towards it, wherever it includes real prior consultation about proposed changes in workshop practice But consultation is not control, because it still leaves the final decision in the hands of a management responsible to the owners of the business, and not to the workers—or to a state-appointed Board or Commission where the industry is publicly owned The workers must still either obey or strike they have still under joint consultation no positive right to participate in deciding what is to be done

Extending Joint-Consultation I want them to gain such a right, by building on joint consultation an extended kind of collective bargaining, under which, in each establishment, the rules and regulations governing workshop practice will be embodied in negotiated agreements, accepted as binding upon both parties and backed by the Trade Unions as an integral part of the structure of collective bargaining Such factory or workplace agreements would, of course, need to be sanctioned by the Trade Unions at the regional and national levels, in order to prevent them from being misused to break down Trade Union standards I can see no good reason why this cannot be done It would, of course, involve the Trade Unions in building up improved machinery for workshop negotiation and in giving greater powers and fuller recognition to shop stewards and factory committees But this would be a great gain because it would diffuse responsibility more widely and would counteract the tendency towards increasing centralisation of Trade Union affairs. With the kind of so-called 'workers' control' that begins and ends at the top, with putting a few Trade Union leaders on the Boards of nationalised industries, I have very little symapthy Trade Union leaders have not been trained to manage or administer large industrial concerns, and only a very few of them are likely to do so even tolerably well Nor will their presence on such boards give the workers any real control unless

WHAT IS WRONG WITH THE TRADE UNIONS

?

21

control has also been built up from the bottom, on the workshop floor. Without this, the Trade Union directors will only become isolated from the workers and will cease to represent them in any sense As for allowing the workers to nominate some of the directors to private businesses, I am again not much interested unless the businesses have begun by building up a workshop structure of joint control, and even then I am suspicious of anything that would convert the workers into co-partners of profitseeking capitalist employers. ' Democratic Partners' I remain, however, convinced that there can be no way of making industry work well under socialisation without enlisting the workers as democratic partners in control, above all at the workshop and factory level. If only a minority wants this, it is nevertheless well worth while, for a minority can leaven the majority with its spirit It is vain to suppose that in a Socialist society it will be possible to compel men to work harder or better than most of them feel like working, or that they will mostly feel like working well unless they can be given a sense that it is up to them to do their best—and this they will be likely to feel only if the responsibility and the power are placed squarely upon them, by leaving them, in their working groups, as much freedom as possible to settle their own working conditions. Only in such a set up will it be possible to train those who are suitable for managerial and technical posts without alienating them from their fellow-workers, or to advance towards a truly classless society in which there will be differences of function and authority without division into contending social or economic classes I am convinced that the Trade Unions, in order to square up to their growing responsibilities, need to make a growing measure of workers' control, beginning at the bottom levels, an integral part of their policy and that the best way of setting about this is to give much fuller recognition and negotiating rights, within the framework of wider agreemens, to shop stewards and works and workshop committees directly chosen by the workers concerned To do this would make the Trade Unions, as well as industry, much more democratic, and would be a real contribution towards the creation of the democratic Socialist society most active Trade Unionists profess to want.

22

W

WHAT IS WRONG WITH THE TRADE UNIONS ?

8. A SUMMING UP

ITHOUT doubt, the primary function of Trade Unions is to look after their members' industrial interests, and any Union that neglects this is being false to its task But such a statement requires qualification Hardly anyone outside its own ranks would praise a Trade Union which, however successfully, pushed its sectional interests in entire disregard of everybody's else's claims. If a particular Trade Union, holding a monopoly of some kind of skill that was in high demand, used its power to improve its members' conditions without paying any attention to the effect of its action either on other industries or on the less skilled workers in its own industry, it would be rightly accused of holding the people to ransom in a thoroughly illegitimate way There have, indeed, been instances of this sort, where a group of craftsmen has not merely done nothing to help the less skilled in the same establishment, but has actually opposed their organisation and joined with the employers in resisting their claims One historic case—now half a century old—is that of the highly skilled steel workers, whose selfish policy was defeated only by the rise of a new Union—the Steel Smelters—which espoused the cause of the less as well as of the more skilled workers, and gradually drove out the abominable practice of sub-contracting, under which the skilled pieceworkers employed the less skilled at grossly inadequate time-wages There were similar experiences in coal-mining, under the ' butty ' system, till the Miners' Federation drove it out No Single Responsibility We cannot, therefore, say that the function of a Trade Union is simply to get as much as it can for its own members it has also to pay some regard to the claims of other workers, and to act, up to a point, in a spirit of working-class solidarity Nor can we say that the Trade Unions as a whole should set out simply to raise wages to the highest possible fraction of the total product, for they have also to consider the claims of the children and of the aged or disabled, and to recognise the need to provide, in one way or another, for enough capital accumulation to keep the economic structure up to date and to meet the capital claims of the social services It is doubtless true that, as long as Trade Unions are relatively weak, there is little or no danger of their claims on their members' behalf conflicting with the general interest, but, the stronger they grow, the more account they need to take of the effects of their claims on other poor people and on the economy as a whole This, however, is a reason, not why Trade Unions should press less hard, but why they should to some extent alter the nature and direction

WHAT IS WRONG WITH THE TRADE UNIONS ?

23

of their pressure For they may reach a point at which merely to press their sectional claims to the full will so dislocate the whole economy as to do them serious harm—eg, by causing unemployment or a balance of payments crisis—unless the basis of the economy is radically changed This sort of issue forces the Trade Unions into politics, both in order to press for changes that can be made only by legislation and in order to square their particular demands with those of other under-privileged groups. In general it has forced them to ally themselves with the Socialists, as the only substantial political body that stands for an alternative economic and social system This, however, has never meant that the Trade Unions have gone over solidly to Socialism or have pressed the Labour Party in the direction of a more socialistic policy. On the whole, ever since they broke away from their old allegiance to Liberalism, they have been mostly on the Party's right wing, though never ranged solidly in one camp Only when a quite clear class-issue has made its appearance, as it did in 1931, have they been even momentarily on the left, and such deviations have not lasted long.

The New Dilemma The Unions' present dilemma is essentially new. They have to admit the need of and even to press for, a high level of capital accumulation out of current production, in the long-run interest of their own members as well as of the whole economy But hitherto the principal source of capital accumulation has always been private profit. Nor is there any alternative source, except taxation, which has increased in importance in this respect with the growth of public capital expenditure As long as the funds for business expansion continue to come mainly from reserved profits, these profits must be high, and must be allowed to increase as the need for new capital gets bigger This, as we saw, limits the possibility of raising wages without either raising profits also or bringing investment to a standstill The only way out of this impasse is for the State to take over the responsibility for new investment, either through higher taxation or by appropriating the surplus profits which are at present re-invested as the property of the shareholders—which would be much the easier method. It would, of course, be denounced as sheer confiscation, but to talk of Socialism without confiscation has always been nonsense All Socialists wish to expropriate the capitalists somehow even those who wish to pay compensation have every intention of cancelling it in the long run by taxes on capital or by the limitation of inheritance, or by some other method that will not discriminate unfairly between one capitalist and another Most Trade Union leaders, however, have not yet fully appreciated the logic of the situation they see only that they cannot go all out for higher wages under capitalism, and have not seen that the remedy is to do away with capitalism now instead of allowing their aspirations to be stultified by its continuance.

24

WHAT IS WRONG WITH THE TRADE UNIONS ?

Nor have most of their members seen this, for many of them still believe that wages and consumption could be increased at the expense of profits, whereas in practice high money wages and high profits go together, as the Labour Government discovered while it was in office after 1945 This delusion is possible because few workers are investors in industry or realise the indispensability of high investment to the future prosperity and level of employment in this country Here again, the only remedy is more and better Trade Union education to bring home the hard economic facts and prevent Trade Unionists from being deluded by over-optimistic false prophets This education is needed, not in order to persuade Trade Unionists to acquiesce in ' wage-restraint' in the interest of profit-making, but to bring home to them how indispensable it is to transfer these profits from their present owners to the public, and to get and sustain in power Governments that will ensure that the benefit of rising productivity accrues to the workers as fast as more can be spared from the requirements of public investment. Education a Priority A Trade Union movement of the kind that is needed for escape from the present dilemma will have to be much better educated, and much less beset by apathy and centralisation, than the Trade Unions are today It will have to be a movement whose leaders can afford to trust their members to think and act for themselves, and will do their best to spread power and responsibility over the widest possible area, instead of concentrating it in their own hands Maybe to hope for such a movement is wishful thinking but to give up hope of it is in effect to give up hoping at all A working class that lacks both knowledge and self-reliance neither deserves power nor is likely to win power to re-organise society on a really democrtic basis Without enough active democrats, democracy in any real sense cannot exist, either in the Trade Unions or in society as a whole

now briefly summarise the principal practical suggestions that I I MUST have made in this pamphlet

1 It is neither possible nor desirable to go back on the system of national as against local collective bargaining that has led to an increasing centralisation of Trade Union power and has reduced the scope for local and district action, but it is both possible and desirable to develop workplace bargaining by shop stewards and works committees within the framework of national agreements, and by so doing to re-vivify local Trade Union action and to diffuse power and responsibility over a wider field 2 It is wrong to be deterred from doing this by fear that workplace bargaining machinery may be captured by Communists or 'fellow-

WHAT IS WRONG WITH THE TRADE UNIONS ?

25

travellers', for, though this danger is real, the rank-and-file apathy that results from over-centralisation is a much greater danger. 3 Even if industrial Unionism is generally to be preferred to craft Unionism, it is not practicable at present to re-organise the Trade Union movement on a comprehensive industrial basis It is, however, practicable to speed up the process of amalagamation, and it would be particularly advantageous if the two big ' general workers' Unions were amalgamated, and if the transport workers' sections of the T and G W U were re-organised as a separate industrial Union 4 Trade Union ' apathy' is largely a consequence of three things— the extension of Trade Union membership to a higher proportion of the workers, over-centralisation, and the increase in alternative attractions for the use of leisure time But this apathy is made much worse than it need be by the failure of most Trade Unions to take any effective steps to educate their members to a knowledge of the working and problems of their Trade Unions and of the working-class movement as a whole A great campaign of Trade Union education and training is therefore needed 5 Trade Unions have now won so much power and recognition that they are forced to act with a high sense of responsibility not only for the direct interests of their members, but also for the efficient working of the whole economy, even under capitalism This means that they have to co-operate in raising productivity and that it is imperative for their leaders to make clear to the members why this is necessary in their own interests This, too, calls for a great educational campaign for better understanding of economic realities 6 Trade Unions have made great conquests in recent years, but the maintenance and extension of these conquests depends on political as well as industrial factors and requires a Government pledged to give priority to working-class interests It is therefore imperative for Trade Union education to include political as well as economic education, in order both to reduce the number of workers who fail to vote Labour and to impel the Labour Party towards a more forthright Socialist policy 7 The links that bind together the rank-and-file Trade Union contributor to his Union's Political Fund and the Labour Party are far too tenuous and far too much concentrated at the top level of Trade Union officials and Executives Trade Union branches should hold special meetings for political discussions and many more Trade Unionists should take an active part in the work of the constituency Labour Parties 8 The development of workers' participation in the control of industry should be made a definite and important part of Trade Union policy, and should be pursued first and foremost at the level of the individual workplace The winning of Trade Union representation on national Boards or Commissions is of little value unless it rests on a foundation of real participation in control at the workplace level,

26

WHAT IS WRONG WITH THE TRADE UNIONS ?

9 Accordingly, a determined effort should be made to advance from mere ' joint consultation' to actual participation in control of policy at the workplace level, by extending the range of collective bargaining to include bargaining at that level about the arrangement of work, engagements, promotions and dismissals, and other matters now usually regarded as falling within the definition of ' managerial functions' 10 Finally, and above all, Trade Unionism can be healthy and militant only if it enlists the active and responsible participation of a substantial proportion of its members, and it should be a foremost task of Trade Union leadership to promote, for this purpose, a greater diffusion of power and responsibility among the members, as well as to do all that is possible to ensure that every Trade Unionist understands the democratic working of his own Trade Union and is equipped also to play his part in the wider activities of the working-class movement

WHAT IS WRONG WITH THE TRADE UNIONS ?

27

APPENDIX: A FEW STATISTICS

A

T the end of 1954—the latest date for which full figures are available— there were 674 Trade Unions known to the Ministry of Labour, with a total membership of 9,495,000 Of these, 217 Unions, with 8,107,000 members, were represented at the Trades Union Congress of 1955, leaving 1,388,000 Trade Unionists not represented The largest Unions outside the T U C were the National and Local Government Officers' Association (NALGO) and the National Union of Teachers The apparently small proportion of Trade Unions included in the T U C is misleading, as some federal bodies which count as single Unions in the T U C are counted as a number in the Ministry of Labour figures In 1938 there were in all 1,024 Trade Unions, with 6,053,000 members The number of Unions had thus fallen by 350, whereas the number of members had risen by 3,442,000 The fall is due mainly to amalgamations the number of Unions in the T U C had fallen by 34, from 217 to 183, whereas T U C membersip had risen by 3,438,000, or nearly 74 per cent

*

*

*

Trade Union membership is highly concentrated in a few big Unions The biggest is the Transport and General Workers' Union, with 1,240 000 members represented at the T U C of 1955 The Amalgamated Engineering Union comes second, with 823,000, followed by the National Union of General Workers with 787,000, and the National Union of Mineworkers with 675,000 These four Unions have together more than 3½ million members, or 43 5 per cent of the total T U C membership The three next largest—the National Union of Railwaymen, the Union of Shop, Distributive and Allied Workers, and the Electrical Trades Union—add another 942,000, bringing the total for these 7 Unions to nearly 4½ millions, or about 55 per cent of the T.U C There are 8 other Unions with from 100,000 to 200,000 members, making a further total of 1,179,000, and bringing the combined total for the 15 biggest Unions to 5,646,000, or nearly 70 per cent of the T U C total Seventeen further Unions, each with more than 50,000, raise the number in the 32 biggest to 6,873,000, or over 84 per cent

*

*

*

The size of a Trade Union, of course, depends both on that of the groups for which it caters and on its success in enrolling members A relatively small Union, such as the Cotton Spinners, may represent

28

WHAT IS WRONG WITH THE TRADE UNIONS ?

a highly organised group, whereas a very big one, with a wide coverage, may be weak in relation to the numbers eligible for membership It is not possible to say what proportion of workers in the various industries and occupations belong to Trade Unions, because the occupational and Trade Union classifications do not coincide The two big ' general' Unions cut right across industrial divisions and include members drawn from almost every industry and service It can, however, be said that the most strongly organised groups include miners, printers, cotton operatives, and civil servants, and that the major sections of steel, engineering and shipbuilding, electrical, and railway workers are also highly organised So are dockers, some, but not all, sections of the building industry, boot and shoe operatives, and a number of less numerous but highly specialised groups, such as dyers and musicians Generally speaking, organisation is weaker among less skilled than among skilled workers and among clerical than among manual workers Railway clerks, however, are highly organised and to a lesser extent so are bank clerks and insurance workers So, outside the T U C , are teachers and local government officers *

*

*

Women Trade Unionists numbered in 1954 about 1,789,000, or nearly 19 per cent of the total Women in the T U C numbered 1,332,000, or 163/8 per cent The T and G W had 152,000 women members, the N U G M W 158,000, and the Distributive Workers 152,000 The A E U had 56,000, the Printing and Paper Workers 63,000, the Weavers 71,000, the Cardroom Operatives 41,000, the Tailors and Garment Workers 99,000, the Boot and Shoe Operatives 33,000, the Civil Service Clerical Association 72,000, and the Union of Post Office Workers 40,000 The rest were widelyscattered In general, Trade Unionism is less strong among women than among male workers, but since 1938 female membership has risen by 93 per cent, as against only 50 per cent for males *

*

*

The total Trade Union membership of nearly 9½ millions at the end 1954 compares with a total working population of 23,667,000, of whom 839,000 were in the armed forces, leaving 22,828,000 But this total includes employers, managers and self-employed persons as well as employed workers It is not possible to say at all accurately what proportion of those who could be members of a Trade Union are actually enrolled, but there is clearly still a wide field for expansion, especially among nonmanual workers, but also among the less skilled manual workers Growth has been slow in recent years Total membership reached 9 millions in 1947 and was nearly as high in 1951 as in 1954 The big increase over 1938. took place during and immediately after the war

G. D. H. COLE: SELECTED WORKS

SELF-GOVERNMENT IN INDUSTRY

SELF-GOVERNMENT IN INDUSTRY

G. D. H. COLE

Volume 2

First published in 1917 This edition first published in 2011 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN Simultaneously published in the USA and Canada by Routledge 711 Third Avenue, New York, NY 10017, USA Routledge is an imprint of the Taylor & Francis Group, an informa business © 1917 H A Cole All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 13: 978-0-415-56651-3 (Set) eISBN 13: 978-0-203-83931-7 (Set) ISBN 13: 978-0-415-59730-2 (Volume 2) eISBN 13: 978-0-203-83960-7 (Volume 2) Publisher’s Note The publisher has gone to great lengths to ensure the quality of this reprint but points out that some imperfections in the original copies may be apparent. Disclaimer The publisher has made every effort to trace copyright holders and would welcome correspondence from those they have been unable to trace.

SELF -GOVERNMENT IN INDUSTRY

BY

GEORGE D. H. COLE

First Published 1918 Reprinted 1971

INTERNATIONAL STANDARD BOOK NUMBER:

0-8369-5731-8

LIBRARY OF CONGRESS CATALOG CARD NUMBER:

71-152979

PRINTED IN THE UNITED STATES OF AMERICA

TO

TI-IE

NATIONAL GUILDS LEAGUE

CONTENTS CHAP'fER I

PAGK

THE CONTROL OF INDUSTRY DURING AND AFTER THE WAR

I

CHAPTER II l"HE RESTORATION OF TRADE UNION CONDITIONS

26

CHAPTER III 71

THE NATURE OF THE STATE

CHAPTER IV THE CASE FOR NATIONAL GUILDS

CHAPTEI~

100

V

THE RE-ORGANISATION OF 'TRADE UNIONISM

124

CHAPTER VI THE ABOLITION OF THE

W AGE-SYSTE~f

153

CHAPTER VII STATE OWNERSHIP AND CONTROL

195

CONTENTS CIIAPTER VIII

l'AGE

226

FREEDOM IN THE GUILD

CHAPTER IX NATIONAL GUILDS AND THE CONSUMER

APPENDIX A THE GENESIS OF SYNDICALISM IN FRANCE-

30 3

APPENDIX B LABOUR POLICY AFTER THE

vV AR

322

SELF-GOVERNl\IENT IN INDUSTRY CHAPTER I THE CONTROL OF

I~DUSTRY

DURING AND

AFTER THE \VAR

IN the midst of a war which has profoundly changed

the economic, social and political life of the nations, men's minds are constantly turning to the thought of \vhat is to come after the war. All section~ of the community profess to realise the need for fundamental reconstruction: everyone says that no mere return to the conditions that prevailed before the war will meet the coming situation. But, though we all seem to be agreed on the need for reconstructing our national life, there is the vvidest possible divergence in the ideals that are being held np to us. One section, imbued with the idea of commercial supremacy and business government, bases all its plans for reconstruction upon the imminence of an international economic war no less bitter and intense than the present struggle of armed nations. Another is preaching the principle of international fellowship and co-operation, often without any clear idea of the basis upon which alone fellowship can securely rest. C.S.G.

A

2

CONTROL OF INDUSTRY

It is to this second section that I make my appeal. To the apostles of national aggrandisement and economic strife between the nations I have nothing to say; for I realise that their ideal of domestic governnlen:t is in direct opposition to my own. Their nationalism and their imperialism are based upon the capitalist system; their object is the aggrandisement of British capitalism; and the individual British citizen is to them no more than an instrument for the making of profits in the interest of national capitalism. If these ideas are to be successfully opposed, those whom they disgust and appal must have to put against them a policy no less clear and coherent. Above all, it must be realised tllat our ideas of international relationships have the most intimate connection with our ideas of internal reconstruction, Jingoism and imperialism are essentially capitalistic, in that they rest llpon an economic fotlndation, and are inspired by the desire of the profiteering classes for \vider spheres of exploitation. True internationalism, on the other hand, must get its inspiration and its driving force from the internal condition of the nations themselves. Bet\veen states and nations whose domestic systems violate every principle of liberty, justice and democracy there can be no stable fellowship. Cooperation begins at home; and the hope of comity among the nations rests upon the establishnlent of industrial and political self-government in the states and societies of the civilised \vorld. When, therefore, we consider the problem of national reconstruction, we are well on the way to considering the establishment of world democracy. Our first business is to set our own house in order; our immediate task is to secure tl!at the reconstruction

AFTER THE \VAR

3

after the war shall bring us nearer to establishing in our own country the principles of lIberty and equality. In this book, I am dealing only \vith a single aspect of this problem; but it is the aspect that seems to me most fundamental. The industrial system llnder \vhich we live conditions and governs all the other activities of our community: our political and our social life are but the reflection of our national economic condition. In dealing, then, with industrial reconstruction, we are pointing the way to political and social changes of a revolutionary character; and these cllanges can only come about by way of a revolutionary change in industry itself. Political democracy is a farce and a pretence, because industrial autocracy remains almost unchallenged: the rise to po\ver of a new class in industry will involve the overthrow of the ruling class in politics and in Society. That the war has exercised a profound influence on industry no one is likely to deny; but as to the permanent effects of the change there are at least two opinions. The grea t ca pi talists see in tIle sacrifices of restrictions and powers which Trade Unions have made during the \var an opportunity of strengthening capitalism by utilising new sources of cheap labour and by breaking the power of the Trade Union movement. Ample evidence of this is furnished by the recent Report of the Employers' Parliamentary Council, which advocates among other things the repeal of the Trades Disputes Act, the Factory Acts, and other industrial legislation, and a general offensive by the employing class against the Trade Unions. To this Council are affiliated, among other capitalist bodies, the master builders, tIle master printers and the Shipping Federation. Moreover, no one who reads

4

CONTROL OF INDUSTRY

regularly the big employers' journals can doubt that a general offensive is in preparation. These journals usually argue about the future of British industry on the virtual assumption that the abrogation of Trade Union rules will be permanent. Often they express a desire for more friendly relations with Labour, but usually on the basis of l.abour's surrender. The capitalists have no intention of a permanent return after the war to pre-war conditions: the war has given them their chance, and the alacrity \vith which many of them have taken advantage of it is a clear indication of the COl.lrSe they mean to pursue in the future. Among the workers, on the other hand, there is a widespread distrust of the intentions of capitalisnl, and, in some quarters, the beginning of an alternative policy. As usual, however, the capitalists are far ahead of the workers: they have a coherent policy which they are even now putting into effect, while the \vorkers are still at the most only groping their \yay to\vards a constructive alternative. In the hope of helping the Labour movement in the formulation of a constructive policy, and of enlisting the sympathies of all those to whom a capitalistic and militaristic imperialism is abhorrent, I am putting forward in this book some general suggestions for industrial reconstruction. These suggestions are based upon the idea that the control of industry should be democratised; that the \vorkers themselve~ should have an ever-increasing measure of power and responsibility in control, and that capitalist supremacy can be overthrown only b~y a system of industrial democracy in which the workers will control industry in conjunction with a democratised State. This is the system of National Guilds, and its dominant idea is

AFTER THE W t\R

5

that the individual worker f11ust he regarded not simply as a ' hand,' a decreasingly important adjunct to the industrial machine, but as a man among men, with rights and responsibilities, \vith a human soul and a desire for self-expression" self-government and personal freedom. Before the \var, the problem of industrial control had forced its way to the front. State Socialism, in part a bureaucratic and Prussianising movement and in part a reaction against the distribution of wealth in capitalist Society, continued to develop, at least in its Prussian aspects. But, from the working-class point of view, State Socialism was intellectually bankrupt. The vast system of regimentation inaugurated by the Insurance Act was opening men's eyes to the dangers of State control, and, in those services, such as the Post Office, which \vere already publicly administered, discontent \\tas gro\ving because the State and municipal employees found that they were no less wage-slaves than the employees of private profiteers. l\1:en were beginning to realise that the heart of the social problem lay in industr)T rather than in politics, and that a fundamental change in the position of the workers could come only through a revolution in the control of industry. The reaction against' politicalism ' was accompanied by a new view of the purpose of the Trade Union movement. It was seen that a revolution in the control of industry could be brought about only through the network of organisations which the \\lorking-class had created by its own efforts. Trade Unionism, which began and grew up as a half-articulate protest against autocratic control in the workshop, the factory and the mine" was coming to be regarded as the

6

CONTROL OF INDUSTRY

embryonic form of a new industrial system in \vhich the workers themselves would supplant capitalism in the control of prodllction. The American Indllstrial Unionist movement and French Syndicalism contributed their quota to the new concepti 011 ; but in Great Britain these two movements \vere important mainly for the inspiration Wllich the~y brought at a vital period in Trade Union development. The British Labour moven1ent was not, and is not likel)7 to be, converted to Syndicalism; but the Syndicalist idea of a Society based entirely on the organisation of producers played an important part in the development of a theory of social reconstruction more suited to our national conditions and temperament. In this environment, the idea of National Gttilds had its birth. Recognising the paramount need for destroying the wage-system and giving the producers the fullest possible share in the control of their life and work, National Guildsmen saw also the true func.tion of the State and the municipality as the representatives of the consumers, of all those who had a common interest born of neighbourhood and common use of the means of life. They set out, therefore, to devise a system by which the control of industry might be shared between the organisations of producers and consumers, so as to safeguard the interests of the community of consumers and at the same tirrle to give the workers freedom to organise production for themselves. Hardly ,vas the propaganda of National Guilds beginning to be understood \vhen Europe was plunged into the n105t devastating war that nlankind has experienced. For the thne being, it seelned that the hope of social construction must be set aside and the

AFTER THE WAR

7

whole energy of the nations diverted to the work of destruction. Interest ill propaganda flagged: the war and its causes and prospects absorbed the attention of every class in the community. But it soon appeared that a modern industrial nation cannot escape in wartime from industrial problems. The war itself has forced the question of industrial control to the front: the need for the mobilisation of national resources has riveted attention on industrial problems. During the \var, men have thought more of the control of industry than ever they thought of it in times of l)eace. War has its industrial problems no less than peace; and the lessons "re have learnt during the war have morals for our national guidance which demand our attention. First and foremost, war has laid bare in all its nakedness the gulf between the classes. Even when all classes have found themselves co-operating in a common purpose, the division of status and interest bet\veen them has hampered their co-operation and impaired their efficiency.1 A Society that rests upon a class basis can attain to unity only by the destruction of its basis and the substitution of democracy for capitalism. The war has brought home to us, as nothing before it had brought home, the waste and the weakness, the loss of liberty and self-government, the sectionalism and the self-seeking which capitalism involves. Capitalism_ has broken do\vn under the strain of war, and the efforts of the State to make up for the deficiencies of capitalism hav'e raised more problems than they have solved. The domestic problenls of the ,var have centred round the control of industry. The national effort at home has been largely an effort to secure the sub1 e.g.

in the munitions trades.

See my Labour ill TVar Time, Chapter VII.

CONTROl, OF INDUSTRY

8

ordillation of emplo~yers and workmen to the task of production to meet the needs of \var. From the time \vhen the problem of munitions first arose, there has been hardly an interval in the long series of conferences and negotiations which have aimed at tIle national organisation of industr~y. If, then, we examine shortly the record of the three parties who have been concerned in these negotiations, \ve shall be able to form our estimate of the industrial lessons of the 'var, and to make suggestions for developments in the control of industry when the \var is over. N O\V, during the war, we must take thought for the future. A nation at war cannot afford to think only of war; for modern \vars are the wars of ,vhole nations, and involve corresponding upheavals in national life. As \ve have been learning ever since August, 1914, war brings with it a \videspread dislocation of the industrial system: the State assumes functions long supposed by politicians and economists to be beyond its power; capitalism itself is transformed in many ways; and Labour experiences the most catastrophic shock it has ever known, and is forced to flo\v into nc\v channels of employment, to surrender hard-won rights, and to assume new relations to capitalism and to the State. Whether or not these things are inevitable fo~ a nation which undertakes to wage a ¥lar under capitalist conditions, they cannot but give the ,vorkers food for Why," they ask, must otIr class suffer thought. all the coercion, and be divorced from all the authority?" Labour is forever told that its services are essential to the prosecution of war: Labour is seared and scarred with the brands of \var; )Tet every act of government during the war seems to leave I.~abour \vith diminished power to control its own destiny. The workman enlC

(C

AFTER THE WAR

9

lists: he is acclaimed as a hero, engaged in a glorious work for King and Country. He is discharged from the Army, mainled for life: his grateful country a,vards him a pittance, and thereafter loses interest in his career. Another worker remains in industry, engaged on important national work: he is howled at as slacker and coward by a capitalist press, rebuked in more dignified language by Cabinet Ministers, and hanned over to the tender mercies of the employing class. The contrast cannot but strike him as strange: he cannot but 'v onder why he is a hero to-day, and a useless suppliant for charity to-morrow. He cannot help realising that the tenderness of the capitalist for the workman soldier is due not to the fact that he regards all his fellow-countrymen as men and brothers, but to the particular character of the service that is being rendered. Real brotherhood would hold firm in peace as well as ,var; but there is no sign that capitalism is willing to make sacrifices for those whose service it accepts. In a sense, the war has led men of all classes to make sacrifices; btlt emphatically it has not led, among the possessing classes, to a change of heart which ,vill bring nearer a Society based on human fellowship. This being the spirit of capitalism, we may look forward to troublous times in the industrial world after the war. The en1ployers, so far from desiring to build the New Jerusalem, will be striving to turn Great Britain into a replica of Pittsburg and Chicago. The dilution of labour during the \var ,vill have provided them with an abundant supply of cheap and weakly organised labour; and the industrial disturbance which may well follow the con1ing of peace, combined ,,,ith the demobilisation of the Army, will fling hundreds

IO

CONTROL OF INDUSTRY

of thousands of workers into the labour market. Trade Unions will have to fight, and fight hard, and this conflict will be carried on under the greatest possible difficulties. Problems that were urgent before the war are saving up for solution when peace returns; and, in addition, new problems are continually accumulating. The normal adjustments of the relations between Capital and Labour are not taking place; the abnormal adjustments of war-time are purely temporary in character. The coming of peace will mean industrial dislocation even greater than that which resulted from the coming of war; for in I914 the dislocation was eased by enlistment, whereas the dislocation of peace will be complicated by demobilisation. Emergency workers in war industries will have to find their way back to the occupations of peace-time: men returning from the Colours will have to be reinstated in industry. And, while the dislocation is at its height, pre-war quarrels between employers and employed may well be renewed; war bonuses will terminate and the struggle for wages will break out again; while, in the munitions industries, the demand for the restoration of Trade Union safeguards will undoubtedly lead, if not to a single great conflict, at least to a long and sustained guerilla warfare. In this struggle after the war, the scales will be heavily weighted against Labour; for upon the workers will fall the brunt of unemployment. If there have been good times during the war, there will be bad times when peace returns. It is true that the Government has promised to restore Trade Union customs, and that much will depend on the manner in which the Government meets the dislocation that peace will cause; but, even if the Government plays fair, conflicts on a large scale

AFTER TI-IE WAR

II

can hardly be avoided. The position of Labour after the war will depend, in the last resort, on the strength of the Trade Union movement. Never, therefore, has there been such need as there is now for the strengthening of Trade Union organisation. The situation is unprecedented, and calls for unprecedented effort on the part of the workers. To face the future with the existing machinery of Trade Unionism is to court disaster. In some industries there are, indeed, combinations strong enough to stand up to the employers. Labour's greatest asset, the Triple Alliance, is in that position, or at least the Miners and the Railwaymen can rely upon their industrial strength. But in other industries, and notably in that industry which will certainly be the storm-centre after the war, sectionalism still holds apart grades whose interests are one and indivisible. Despite the strength of the Amalgamated Society of Engineers, organisation in the engineering industry is chaotic. A vast number of sectional societies still compete for the adhesion of the skilled workers, while the mass of the unskilled are divided among a number of general labour Unions which have no basis for co-operation with the skilled Unions. A common policy for all sections IS absolutely necessary if Trade Unions are to secure the restoration of their rules after the war. But such a policy will never be developed while so many sectional societies retain their autonomy, or \vhile the isolation between skilled and unskilled workers continues. Industrial Unionism alone can solve the problem by uniting in one great Society all the workers in each industry. Towards this end all who wish well to Labour must strain every nerve, and where complete Industrial Unionism

12

CONTROL OF INDUSTRY

is for the moment unrealisahle, the greatest possible zfforts must be made to secure close co-operation and unity of policy. Trade Unionists must not rest content when they are told that during the war amalgamation is impossible; amalgamation will always be inlpossible until Trade Unionists insist upon it. The need for closing up the ranks is indeed great; but hardly less great is the need for a constructive policy. The average Trade Unionist envisages the problem of conditions after the war as a problem of wages and hours: he does not realise that he is faced with nothing less than the possibility of revolutionary change in our economic system. What is needed is a wider outlook and a greater daring in the formulation into concrete policies of the possibilities latent in the present situation. Trade Unionism, then, will have to face after the war the greatest crisis in its history.

Can this crisis

be turned to good, so as to be also Labour's greatest opportunity? The hope of this lies in two thingsin the complete solidarity of Labour in face of the common danger, and in the possession by Labour of a constructive policy. These two things are intimately connected. One of the gravest dangers before the Labour movement is that of disunity after the ,var; and the hope of securing unity lies mainly in getting a common policy. Capitalism is busy making plans for the period after the war: Labour should be no less busy preparing a constructive alternative to capitalist aggression. The history of Trade Unionism during the war furnishes little encouragement for hope in its future wisdom. Beginning with the declaration of an industrial truce by the leader5 ,vithout the securing in

AFTER THE WAR

I3

return of any concession from the employers or the Government, it has gone on from mistake to mistake. At every turn, Labour has been out-manreuvred. It has given up without a struggle many of the fruits of a century of organisation and sacrifice; but it is a strange fact that each sacrifice has only earned it a further reputation for lack of patriotism. The man in the street, who kno,vs nothing of Trade Unionism, has been easily led by the capitalist press to believe that the workers have behaved unpatriotically. Each concession by I"abour has been at once followed by a cry for more: whenever there has seemed a danger that the true facts about Labour's sacrifices woul(l become known, an outcry has been started by the politicians and the Press, and at once the eternal quest for Labour's scalp has been renewed. Unpatriotic action by politicians and by capitalist exploiters has passed almost unnoticed; 1 every tiny slip: real or imaginary, that could be imputed to Labour has been added to the lying indictment against the workers. The number of strikes during the war has been astonish-

ingly small, and hardly a strike has broken out without the most serious provocation; but the public remembers only the strikes that have taken place, and forgets the countless occasions on ,vhich Labour has refrained from asking for justice because of the national emergency. Nor does the public realise what abstention from strikes means for Labour. If the employer desires to introduce a change in working conditions, he introduces it, and the ,vorkers' only remedy is a strike, in ,vhich the burden of unpopularity must fall on them. If the ,yorkers themselves desire a change J

1 I am thinking here, not so much of food or shipping profiteers, as of the many contract scandals, especially those of the early part of the war.

14

CONTROL OF INDUSTRY

again they must strike, and again incur the unpopularity. To those ,vho know anything of o'Norkshop conditions, the sustained output of munitions has been a marvel: the workers have laboured ungrudgingly for long hours and have acquiesced in the most drastic restrictions on their liberty, personal and industrial. But the public remembers only the vague charges of drunkenness and restriction of output brought by Mr. Lloyd George, and does not remember how completely everyone of these charges has been refuted. It is of no use to blink the fact that, despite all the sacrifices Labour has made, it is even more lIn popular than if it had not made them. The chances are that, in its hour of danger after the war, I.~abour will have public opinion heavily against it. This is, of course, one of the results of capitalist domination, which, by controlling the Press and th/; politicians, can mould ptlblic opinion to its ,viII. The same po\ver has enabled the capitalists to cover up their own deficiencies. The Press and the politicians have concealed tIle faults of capitalism,1 while they have missed no opporttlnity of exposing the faults of the workers. The result is that the public has no conception of the extent to \vhich capitalism has restricted production and failed to adapt itself to the changed conditions of war-time. Capitalist combination, often emplo)7ed to force up prices in peace .. time, has been used for the same purpose during the war, when the need has been for a combination to keep prices down. The workers have given up during the war the weapons with which they fight the employer: the employer has been far less ready to give up his 1 For instance, no nlention is allowed in the Press of the terms under which the State now exercises control over the coal mines.

15

AFTER THE WAR

power of exploiting both the workers and the public. In both an econolnic and a human sense, capitalism has failed to rise to the occasion: it has been wasteful and inefficient in the economic sphere, and in the social sphere it has done nothing to redeem its record of inhumanity and oppression. It is not to capitalism that we owe the mobilisation of national resources; for the motto of capitalism has been business as usual.' What, then, of the State-that third party in the economic organisation of the nation? For the State, the \var has meant a tremendous increase of industrial activity and po\ver. The failure of capitalism to mobilise national resources has brought the State into the field in its place, and the State has been forced to assume, for the time at least, a considerable share in industrial control. Over mines, railways and munition factories, over importation and exportation, over the distribution of food and of the raw materials of production, the Government has extended its power. Leaving the actual management of industry in the hands of the employers, it has sought to direct their work according to the national needs. It has not interfered with the structure of capitalist industry; but it has made capitalism itself a part of the machine of government. On the other hand, the State has assumed far \vider powers over Labour: it has forbidden strikes in the vital industries, and itself assumed control of the movement of wages; it has taken away the right of the worker to leave his employment; it has imposed new disciplinary rules upon him, both at his work and in his leisure; and it has assumed large responsibilities on his behalf for the period after the war. Htlw far these experiments have been sucI

16

CONTROL OF INDUSTRY

cessful it is not easy to say; for that depends on the criteria used to estimate success. But the fact of the tremendous extension of State power in industry cannot be denied, nor can it be maintained that it will be easy to go back to the old conditions when the war IS over. Whatever may be our ideal conception of the function of the State in industry, the present position carries with it dangers which must not be overlooked. The State of to-day is an oligarchy, and during the war it has served Mammon as it served him in peace. It has interfered perforce with the rights of property; but property has received full compensation. It has interfered with the rights of Labour; but.in this case the compensation has been far less adequate and far more problematical. If, then, the State remains a power in industry, it will be still not the democratic State, the representative of the consumers, but the oligarchical State which bows to the will of the lords of capital. It is of no use for the workers to look to the State for salvation: the State responds only to economic pressure, and the salvation that will be got from it will be strictly in proportion to the economic pressure applied. Too many workers striving for too few jobs inevitably reduce the standard of wages unless the combination among them is far more complete and pervading than any that Labour has yet achieved. The most urgent need for the period after the war is the need for a more vigorous and united Trade Union movement. Unless the workers realise their common danger and combine to confront it, there is little hope that they will emerge from the struggle without crushing defeat.

AFTER THE WAR

17

It is one of the most significant facts of the war that it has meant for most people so small a reduction in the standard of life. Yet it is hard to make the workers realise what this means. It means this. During the last t\VO years the nations have been shooting away in shot and shell, and otherwise wastefully consuming, an enormous proportion of the wealth that has been produced. At the same time, millions of men, the most productive workers, have been removed from industry to do the work of war. Yet it has been possible under these conditions for the luxurious expenditure of the rich to continue almost unchecked, and for the poor, taken in the aggregate, to enjoy hardly less \vealth than before. These facts must be driven home to the minds of the workers; for they serve to show the vast amount of wealth which each nation is capable of producing if it is organised aright. So far as productive po\ver is concerned, there is no reason why the real wealth and income of every worker should not be trebled and quadrupled immediately after the war. Trade Unionists must be made to realise this; for, when once they have done so, they will take courage to put forward demands worthy of their manhood. No longer content to be the catspaws of capitalism, they will begin to assert their humanity and to claim their fair share of wealth and well-being. Su~h a demand would bring the wage-system tottering to its fall; for it is not within the wage-system that such changes can take place. Labour must therefore be ready with its alternative: the workers must be prepared to organise the nations for well-being as the employers have organised them for the profit of a few. C.S.G.

B

18

CONTROL OF INDUSTRY

Among those who are prepared to denland a revolutionary change in social organisation, there are conflicting theories as to the method by which the change will be brought about, and as to the form cf the social structure which will replace capitalism. Nearly all are agreed that the change ,viII be gradual, in the sense that it will involve a series of distinct but connected changes. The chief point at issue is whether the change will come by the action of the State assuming from above the control of industry, or by the pressure of Trade Unionism assuming control from below. This is not the place for a general discussion of these conflicting theories: all that this chapter sets out to do is to discuss in broad outline the possible developments in the period following the war. We have seen that the war has immensely increased the control of the State, both over industry and over the lives of the CItizens. What is to be the future of this control? Even those who believe most firmly in the extension of the State's po,ver must realise that recent extensions have not only been unaccompanied by increased democratic control, but have been directed to the breakdown of democracy and the glorification of a governing class bureaucracy. Distrust of the State is growing apace, both among the ,vorkers and among all lovers of freedom and democracy. The conquest of political po\ver Inay SOll1e day purify the State and so change its nature as to nlaI(e it a new thing; but the conquest of political po,ver is not yet, nor could political power be exercised by Labour's politicians of to-day or to-morrow. For a long time to come, extension of the power of the State will mean the strengthening of capitalism and bureaucracy. Labour must beware of allowing the authority which

AFTER THE WAR

I9

the State has usurped during the present emergency to become a permanent institution. While the Munitions Acts, the Military Service Acts and the Defence of the Realm Acts remain upon the Statute Book, they will hamper every effort of the worker towards emancipation. Their removal from the Statute Book must be the first plank in Labour's platform on the termination of the war. Not to the State can the workers look yet awhile for freedom: their eyes must be turned to Trade Unionism, for therein lies their hope. One result of the ,var which our lords and masters have been unable to avert is the gro\vth of a new consciousness in the \vorld of Labour. If only in order that they might be more effectively coerced, the workers have been consulted by the Government. Never, Mr. Arthur Henderson tells us with pride, have there been so many conferences bet\veen Labour and the Government as during the past year. It is nothing to Mr. Henderson that each of these conferences has involved Labour in unrequited sacrifice; but there

is at least this force in what he says. The fact that the Government has to consult Labour is a sign of

Labour's importance, and a sign that) ably led, Labour might gain where it has lost and reap the harvest its sacrifices deserve. Moreover, coercion is teaching the workers their lesson. Oppression under the Munitions Act is awakening in the workshops the demand for a greater measure of control by the workers over their life and work. This claim has more than once found voice during the war: after the war it must be Labour's great constructive demand. The Treasury Agreement between the Government and the Trade Unions and the Munitions Act, in which it \vas subsequently incorporated, were proclaimed by

20

CONTROL OF INDUSTRY

Mr. Lloyd George and others to be the Charter of Labour. It would be far truer to say that they are the Charter of Capitalisn1, the beginnings of a new partnership between the State and Capital which it will not be easy to destroy. In the Munitions Act, the State virtually entered into a profit-sharing arrangement with the employers for the exploitation of Labour, lending its disciplinary powers to the employers for the period of the war. A great deal was said about securing the active co-operation of the Trade Unions, and the Trade Union leaders were induced to give their consent to the scheme; but the fact remains that Labour was consulted only in order that the chains Inight be more firmly riveted upon it, and that no attempt was made to give it even the smallest share in the responsibility for the carrying on of industry. Naturally, the result of so one-sided a measure as the Munitions Act was unrest in the workshops. Under the new and galling restrictions imposed by Act of Parliament, a half-articulate demand began to grow up among munition \\7orkers for a greater share in the control of their working lives. The policy of dilution, involving the substitution of unskilled, selni-skilled and female workers for the skilled engineers, lent intensity to this delnand, which found a voice when, towards the close of 1915, the Munitions Act had to be amended. The munition workers felt the existing situation to be almost intolerable, and they rightly claimed that in the remodelling of industrial methods they should have a voice. Their demand' has for the most part gone unheeded; but it is real, and only the emergency of war keeps it under. It cannot be ignored when we come to consider the industrial reconstruction after the war.

AFTER THE WAR

21

Scientific management, with its adjunct, the premium bonus system, has made huge strides during the war. If the employers have their way, it will make still greater strides when. peace returns. To americanise British industry, to cheapen the cost of labour, and to reduce the workers to mere automatic machine tenders, whose hours of toil in the workshop make them fit only to be the submissive hirelings of the rich-this is the capitalist ideal. It is the ideal of slave-owners and slave-drivers, and only a nation of slaves can accept it. The employers' tyranny to-day and their hope of complete domination to-morrow are alike based upon their autocratic control of the workshops. There, they are the masters; and every effort of the workers to secure a little liberty at their work is denounced as wanton and revolutionary interference with the capitalists' 'own.' If the tyranny of the few is to be undermined, the first steps towards undermining it must be taken by the workers themselves in the workshops. If they are to prevent the capitalist from realising his ideal, they must conceive and realise an ideal of their own. In the workshops they must secure through their Trade Unions control of their working lives; for the alternatives to Trade Union control of industry is control by capitalism either directly or though its servant, the capitalist State. This ideal of National Guilds, self-governing associations of workers arising out of the Trade Unions and controlling industry in conjunction with a democratised State, can only be realised by a series of steps. Before they can assume full control, the workers must learn by experience ho\v to control. It is of no use to cry 'Control,' without formulating as clearly as possible the next steps that have to be taken in the

22

CONTROL OF INDUSTRY

direction of control. These next -steps are the practical policy which is the expression of the new Trade Union ideal, and it is in the belief that the war offers an opportunity for beginlling a ~ew policy and a ne\v tradition that these suggestions are put forward. Now, when the industrial system is in the melting pot, when our national life must undergo great changes for good or ill, is the time for the Trade Unions to make their demand for a share in control. But here two questions may well be asked. Are the Unions strong enough to win responsibility, and, even if they are strong enough to win it, are they capable of exercising it \vhen it has been won? It is useless to ignore the difficulties that are in the way. Sectionalism, rivalry and overlapping among Trade Unions make it hard for them to win control, and still harder for them to exercise it. The ne\v conception of the purpose of Trade Unionism cannot but give a great impetus to the movement to\vards Industrial Unionism; for, as soon as they begin to seek control, Trade Unionists \vill find themselves thwarted at every step b)T the chaotic state of their organisation. It may be said that Industrial Unionism should come first and control afterwards; but there is mllch to support the vie,v that Industrial Unionisnl will onl)1 be achieved when the adoption of a ne,v policy makes the absurdities of sectionalism no longer tolerable. The two movements towards control and amalgamation must go on together, for each will lend to the other a momentum \vhich neither could by itself acquire. AmaIganlation is not the only need of Trade Unionism to-day: there is a need no less urgent for the reform of the internal government of the Unions. Events during the war have shown time after time how

AFTER THE WAR

23

little the official machinery of Trade Unionism effectively represents the active will of the members. Recent events have only served to widen the breach between officialism and the rank and file, and the growth of bodies like the Clyde "Vorkers' Committee is a sign of the times. A healthy Trade Union movement would not throw up anti-official bodies like the Clyde Workers' Committee, or drive into opposition the men of whom such bodies consist. Mr. Lloyd George may say of the Clyde leaders-and Mr. Henderson may agree \vith him-that these men are in revolt against Trade Unionism"; but no one who studies the Trade Union movement in an impartial spirit can help seeing in the Clyde Workers' Committee a symptom of the malady that afflicts Trade U nionislD everywhere. One of the most pressing needs of the day is that the machinery of Trade Union government should be overhauled, in order that the Unions may be equipped with a constitution that wil1 enable the members to get their will enforced by constitutional means. A readjustment of the relations between the local and central authorities in the Unions, a full recognition of the works as the basis of Trade Union organisation, and an enlarged use of representative conferences drawn from the workshops would go far to make Trade Union machinery more elastic and representative in its ,vorking, and would help to bring officials into closer touch with the rank and file, and so replace useless girding at officialism in general by useful and responsible criticism of the actions of officials. The winning of a share in control would make ne\v and unexampled demands upon Trade Unionism: for control could only be effectively exercised if there were in every district and in every U

24

CONTROL OF INDUSTRY

,yorks men elected and clothed with authority by their fellows, subject to the criticism of all and taking daily important decisions on behalf of all. The success of the demand for control will depend largely on success in working the first instalments of control as they o.re secured; and such success demands a higher degree of vigour and alertness among the mass of Trade Unionists than has yet been aroused. The policy of control is difficult; but its very difficulty is a sign that it is worth while. The crowning indictment of capitalism is that it destroys freedom and individuality in the worker, that it reduces man to a machine, and that it treats human beings as a means to production instead of subordinating production to the well-being of the producer. This state of affairs can be remedied only by the ,vorkers asserting their freedom and proving their individuality, "Qy their refusing to be regarded as machines, and by their determining to assume the control of their own life and work. That there are ill the Trade Union movement men enough \vho are ready for this great adventure and fit for the responsibilities \vhich it involves there can be no doubt: the problem is that of giving scope for their energy and direction to their revolt against presellt conditions. This direction the idea of the control of industry supplies; this scope will be furnished by the first steps that are taken in the direction of control. But if this energy is to be directed into the right channels, a share in control must be won locally as well as nationally, in each workshop as well as in each industry as a whole. National joint committees of officials and employers are of no use. What is wanted is that in every works the \vorkers should begin to play, through

AFTER THE WAR their Trade Unions, a real part in the task of direction and management. If that is secured, it will not be long before energy and intelligence enough are applied to the "vork of control to make it certain that, step by step, the workers will win their way to that complete control of industry by Trade Unionism in conjunction with the State which is the ideal of National Guildsmen. The war is Trade Unionism's opportunity as well as its danger. If it is to profit by the opportunity and avoid the danger it must be prepared. During the 'var, it has suffered heavy material losses; but, if it has behind it a constructive policy, these may well be out\veighed by its moral gains. As never before, Labour has perforce been consulted during the war. It has gained nothing from consultation, because it has asked for nothing constructive. Let it but ask for a share in control, and, if there is a real will of the members behind its demand, it "vill be too strong to be resisted. Capitalism is morally discredited: it is for Labour to suggest a constructive alternative to capitalism.

CHAPTER II THE RESTORATION OF TRADE UNION CONDITIONS

I THE tower of Babel ,vas nlan's first great architectural experiment, but it is doubtful whether it occasioned so great a confusion of tongues as that which is now dinning upon our ears. The re-btlilding of a world is a fascinating enterprise, and everyone is anxious to play his part in the reconstruction which will come at the end of the present war. Assuredly, there lIas seldom been so great a medley of rival prophecies; and, no less surely, there are false prophets abroad. But it is all to the good that we are beginning to plan before we have to build, and that the prophets are t getting it off their chest' in good time. Our failure to deal adequately with the indtlstrial situation at the outbreak of war was partly the result of unpreparedness. There was no time for the discussion of rival schemes, or for selection and fusion of the many proposals put forward. The Government had to decide off-hand, and there are few bold enough to say that it decided well. To-day, with the end of the war not yet in sight, we are already beginning to discuss policies of restoration. The purpose of this chapter is to give a rapid survey of some of the chief types of solution that are

TRADE UNION CONDITIONS

27

being proposed; to discuss the problem in its various aspects, and to suggest possible \vays of dealing with it. The central feature of the problem, it is generally recognised, is the coming redemption of the pledges given to Labour during the war. To the principle that these pledges must be redeemed, lip-service at the least is paid by all who prophesy openly. But \vith this lip-service too often go practical suggestions which are equivalent to a refusal of restitution. "We must of course restore; but we must not do so and so," is a common formula in the writings of some of the most influential prophets. Labour, we are told, must receive back as much as it has sacrificed; but, apparently, it must not have back just those things which cost it the greatest wrench to give up. And, if it is offered a quid pro quo, instead of the quo of Trade Union rights, there is too often held out to it the unpalatable quid of State control. This chapter is written in order to urge that a real restoration must take place; that Trade Unionism must be restored at least to the position and the freedom which it had before the \var; and that, if there is to be bargaining about restoration, it must be about the forIn and manner of restoring Trade Union rights, and not about the question whether Trade Union rights shall be restored. Let us begin by setting out briefly the substance of the pledges which Labour has received. They are incorporated in the voluntary agreements entered into by the Trade Unions with the Government in March, 1915; they have taken statutory forIn in the Munitions of War Acts; and they have been reinforced, time and again, by the personal pledges of Ministers and the collective guarantee of the Cabinet. In form,

RESTORATION OF they are simple and comprehensive. .. Any departure during the war from the practice ruling in the workshops, shipyards and other industries prior to the war shall be only for the period of the war." In one form or another, this general promise has been amplified and explained in subsequent utterances of the leading Ministers, Mr. Asquith, Mr. Lloyd George and Mr. Balfour among them. The Munitions Acts not only have statutory force; they have also behind them the collective promise of the Cabinet that they will be observed in the spirit as wel1 as in the letter. "We have sat hard on the workers during the war; we must sit no less hard on the employers when it is over," a prominent Government official is reported to have said. There is, then, no ambiguity about the general terms of the guarantee. The letter of it means, if it means anything, that every Trade Union rule, regulation· or custom which has been varied as a result of the war will be absolutely and completely reinstated when the war is over. To this the Government is bound by promise, and, if it cannot give the Trade Unions precisely this in every case, it must at least in no case give them less than this. The generality of this guarantee is at once its strength and its weakness. It lends the fullest moral force to any demand for restoration which the Trade Unions may make; but it does nothing to settle the many difficulties of detail which are bound to arise in giving effect to it. The nature of the demand for munitions and the removal of Trade Union restrictions have in many ways changed the face of industry, and in some cases made a return to pre-war conditions impossible. The attempt is sometimes made so to exaggerate the

TRADE UNION CONDITIONS

29

number of these cases as to sugg~st that the Government pledge is generally ull\vorkable. This, as vve shall see, is far from being the case. Restoration is, on the whole, a perfectly workable policy, and, wherever restoration is possible and the Trade Unions demand it, it is the Government's duty to restore. The area over which exact restoration is impossible, and in which bargaining must take its place, is comparatively narrow, b.ut, as will appear, highly important. Too many of our industrial prophets speak as if an entirely new bargain had to be strnck bet\veen employers and employed after the war. There is a sense in \vhich a ne\v bargain must be struck; but it will be a bargain, not between two parties vvho start , quits,' but between debtor and creditor. A bargain was strnck in the Treasury Agreement of March, 19I5, between the Government and the employers on the one hand and the Trade Unions on the other. Out of that bargain, the Government and the employers have received their due; but the Trade Unions have still to receive theirs. They let their holding to the Government for the period of the \var rent-free; and they are fully entitled to the reversion \vhen the war IS over. Thus, vvhen \ve are told that the guarantees given to Labour must be observed in the spirit as well as in the letter, it is well that we should be on our guard. The spirit notoriously bloweth where it listeth, and there are not a few who would like the spirit to blow the letter quite away. We are not saying that absolutely literal restoration is possible in all cases; but we are saying that we must be very careful how we depart from the letter of the promises that have been made.

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In tal{ing up this position, we are not unmindful of the need for securing the fullest possible industrial efficiency after the war. But there are two rival gospels of efficiency. There is a theory of industrial management which refuses to consider tIle worker as a human being with a will and desires of his own, powerful for good or evil, according to the direction which they take. This machine-made efficiency of the industrial bureaucrats may look ver.y well on paper; it may be garnished with many a graph and many a statistical table of output; it may carry complete conviction to those who know nothing either of men or of industrial conditions. But precisely what the 'scientific managers' ignore is the humanity of the working-class. They believe that working-class ideals begin and end with higher wages, with the securing of a slightly better standard of material comfort. They do not realise that the foundation of inefficiency in industry lies in the divorce of the mass of the workers from power and responsibility, and that the way to efficiency lies through the diffusing of these things among the workers. Trade Unionism has been in the past the workman's sole means of self-expression, and he has expressed himself by means of those sJ.feguards which the war·has for the moment swept away. No doubt, the safeguards which he has provided have been sometimes clumsy or tlnwise; but they are his safeguards-the. best which he has been able to secure in face of the constant opposition of vested interests. The way to get better organisation and greater efficiency is to strengthen these safeguards" and anything which tends to hamper Trade Unionism will make in the long run for useless friction and for inefficiency in production. The nation must see to it. that Trade

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Union rules are restored, if it does so only in the interests of the national industry. I have dealt in general \\t~ith the terms of the Government's guarantees to Labour; but I have not referred as yet to what amounts to the clearest guarantee of all. During the war, the right of the Trade Unions to speak for the working-class has for the first time received clear official recognition. They have been summoned to special conferences, and asked to negotiate with the representatives of the Government; they have secured representation upon Government comInittees and tribunals, and, in the words of a leading politician, negotiating with the Amalgamated Society of Engineers has heen "like holding diplomatic conversations with a foreign power." It is true that in every case the object of the Government has been to make the Trade U nious forego rights and safeguards which they hold dear; but the precedent so set cannot be gone back upon. For good or ill, the Government has recognised Trade Unionism as an independent authority, and Trade Unionism will never lose the new position \vhich it has acquired. It may be said that so far we have been speaking almost as if the readjustment after the war were purely a question between the Trade Unions and the Government, and one in which the employers \vould have no say. In fact, they are of course bound to have, if not the greatest say of all, at least a very great influence on the course of events. It is sometimes argued that the employers have given no promise of restitution, that the pledges given by the Government have no moral obligation for the employer, who has only yielded to the force rnajeure of an Act of Parliament. Though this argument is sometimes seriously

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advanced, it hardly deserves an answer. The observance of the Treasury Agreement was make a term of Government contracts. The employers made no protest at the time; moreover, they have taken advantage of the abrogation of Trade Union safeguards" and they are morally bound to give back what they have received. The Munitions Acts made the Trade Unions no longer free agents, and to a certain extent tied the hands of the employers also. When the war is over, the employers are morally bound to co-operate in the task of restoration. If, in this article, restoration has been spoken of in broad and simple terms, it is not because the inherent difficulties of the situation are not realised, but because it is important at the outset to define the general issue as clearly as may be. If vve are to discuss profitably the methods of restoration, we must attach an absolutely definite meaning to the term, and we must be fully conscious of the obligation \vhich rests upon all the parties concerned. With that firmly fixed in our minds, we can go on to discuss readjustments which may be beneficial to 1,abour, whether they involve the pern1anent abolition of restrictions previously imposed by a Trade Union or the breaking down of barriers previously imposed by an employer. vVe are apt to speak as if Trade Unions alone restricted output. or hindered the full development of our national resources. But, when once \ve come to examine the question, we find that many of the traditional practices of employers act as drags llpon the wheels of industry. If, then, having restored Trade Union rights, we seek a better adjustment of industrial relations, we shall find many things which both sides can well afford to give up. But, if in such cases there is to be a reason-

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able exchange, Trade Unionism must first be assured of complete restitution. On this basis alone can there be a fair deal.

II Prophets, we have seen, abound. Upon the grind·· stone of war conditions, every propagandist has an axe to grind. Let us now try the temper of some of their steel, by discussing in general the various types of social solutions \vhich are being suggested for the period after the war. The most obvious and insistent claim hitherto made is that put forward by certain groups of employ'ers and by a number of industrial and comnlercial journals. Germany, we are told, mobilised her national industrial resources before the war, and to this mobilisation a great deal of her strength is due. In like manner, Great Britain is' urged to mobilise all her resources. , Organisation' is the keynote of this policy: British trade·and industry, it is said, have been disorganised

in the past; but in future there must be a national, if not an Imperial, or even an Allied, combination of industrial interests. Nor is this demand confined to an appeal to employers to realise the benefits of solidarity, both for themselves and for the nation. The State, it is urged, should assume a ne\v function in relation to industry; it should encourage, recognise, and even subsidise the proposed new aggregations of commercial and industrial interests. This project assumes the most concrete form in a recently published book, Trade as a .5c-ience, by Mr. E. J. P. Benn, who, it is significant to notice, is also contributing a series of articles on the same theme to C.S.G.

c

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the Times Trade Supplement. Mr. Benn wishes British manufacturers to ( clean the slate' of obsolete methods and customs: "he looks forward to the formation of ne,v great Associations of Employers, including every important firm in each industry, fully recognised by the State, dealing both with the business side of industry in its relation to buying and selling in home and foreign markets, and with labour questions. In short, Mr. Benn, and many others like him, look for,vard to a definite partnership between the State and the organised employers in the conduct of the national industry. N or are these empty dreams of industrial theorists. Associations, and projects of Associations, on the lines suggested by Mr. Benn, are already springing up, especially in connection with the engineering industry. For instance, in the summer of 1916 a big meeting \vas held in Glasgo\v, representing 300 Scottish engineering firms, with a view to the formation of a strong central organisation. Similar meetings ha,re be&n held in England, and, in both cases, huge combinations are in process of forn1ation. Though there are some leading spirits in the movement \vho view \vith suspicion proposals for State intervention, most of the speakers at these meetings dwelt on the contrast between Great Britian and Germany, and on the need for a reorganisation of British industry through strong central Associations of Employers working in close co-operation with the State. It is certainly not my purpose in this book to pronounce against efforts to increase the efficiency of industry. I am dealing only with the effect of the schemes suggested upon the immediate reconstruction which must follow the war, and, more especially, with

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their reaction upon the Labour situation. I have described the pledges given to Labour that what it has sacrificed during the war \vill be fully restored to it. How, \ve must now ask, ,vill the proposed new combinations in the \vorld of Capital affect these promises, and what attitude is Labour likely to adopt towards them ? Against employers' combination in itself Labour has certainly nothing to say. There is very much to be said for the view that it is better to negotiate \vith strong Associations of Employers than with isolated firms. Indeed, so clearly is this recognised that of late years we have had Trade Unions almost forcing national combination on the employer. The ~finers' Federation, for instance, itsel{ a national organisation, is driven, in its attempt to deal with the coalowners on a national basis, to force a higher degree of national combination upon them. Again, the Tinplaters almost coerce unfederated firms into the Employers' Association. There is certainly no Labour objection, on grotlnds of either principle or expediency, to capitalist

combination. It is, however, quite another matter if a new type of combination arises, and if the State accords to this new type recognition and co-operation. When we find Mr. Benn proclaiming in the Times Trade Supple1nent that "we have got to apply the 'munition' method to every trade," we must expect to find Labour suspicious of such a prophet. When ~ir. Benn proceeds to "outline a national trading organisation, with a Minister of Commerce at its head, and each trade represented by its association," can we wonder if the workers begin to ask where they come in? And, when \ve learn that "each trade will undertake on

RESTORATION OF behalf of the nation the upholding of British interests, and the Govern1nent w1~ll help and recognise its efforts," we find the question rising to our lips whether this is not a definite bid for the continuance after the war of {hat power over the workers which the war has put into the hands of the employers. It is true that 1\1r. Benn suggests, not only the appointment of an official Association in each trade, but also the official recognition of a Trade Union in each trade. Thus, existing independent Labour machinery is to be recognised; but official employers' machinery is to be created. This seems to us to imply a far closer relationship between the employers' official Associations and the State than between the workmen's independent Assoc;iations anQ the State, and we are fearful that this form of the extension of State control, with whatever intentions it set out, would in practice lead to a partnership between the State and the employers to Labour's detriment. Moreover, the official recognition of a Trade Union by the £tate as representing the trade clearly opens up, at the present stage, possibilities dangerous to Labour. In any case, if \ve leave Mr. Benn on one side, it is clearly that the demands of the big employers for State aid do not include any suggestion that Labour shall play an equal part in control. We must go cautiously in these matters. A step which n1ay seem on the surface merely a necessary protection of British commercial interests may well prove to be a step down the slippery slope of bureaucratic control. Let us try to put our objection to this demand f01 State-aided Capitalism in a clearer light. Under the existing economic system, Capital and Labour are alike

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necessary to production. Trade Union action in the past has to a limited extent secured that the two parties are able to bargain on equal terms. FroIn their bargaining the State has usually held aloof, or, when it has intervened, has acted, in theory at least, as an in1partial third party. Taken as a whole} the balance has been by no means equal; but each side has at least had the chance of weighing it down a little. Now, if the State enters into an alliance \vith either of the parties, the balance will be upset. A growing school of Labour thought has urged, in recent years, that we must look for the solution of the industrial problem to an alliance some day between the Trade Union movement and a democratic State, and this has been urged with the definite intention of upsetting the balance of power between Labour and Capital. Are we wrong in detecting, in the new proposals for an alliance between the State and the employers, an equally definite intention to upset the balance of power in the opposite way? The contrast has been drawn before no\v between Syndicalism and Syndicatism-between the idea of a \vorking-class society dominated entirely by the rrrade Unions, and the idea of a capitalist society no less completely dominated by great capitalistic combines. On the Labour side, there has gro\vn up subsequently the subtler conception of a partnership between Trade Unionism and the State: \ve have now the capitalist reflex of this idea in the suggestion of a partnership between the State and the employers. Whatever n1ay be our vie\v of the future organisation of industrial society, it is well that \ve should realise ho\v far these projects n1ight lead us. \Ve cannot afford to upset the balance of power unless

RESTORATION OF we are very sure of the direction we are taking. If we are sure, we may be either enthusiastic advocates or determined opponents of the above type of proposals; but the danger is that we shall commit ourselves without knowing whither we are b.ound. No doubt, little of what has been said above appears in so many words in the projects that are being mooted now. As a rule, little is said in thenl about the relations between Capital and Labour, and they are, on the surface at least, projects merely for the furtherance of conlmercial and industrial prosperity. But, every now and then, suggestions appear that one of the chief functions of the proposed Associations will be to deal with industrial relations. Often, the object is nominally to promote better relations between employers and employed so as to secure industrial harmony and what the Lo"rd Provost of Glasgow calls " a defensive organisation for eacll trade as a whole." But the suggested partnership is to be between the State and Capital. There is no suggestion of a partnership for Labour, except in a very' junior' sense, and there is more than a suggestion that one of the first objects of the Associations is to secure to employers a free lland in new nlethods of industrial control. This will inevitably lead to conflict \vith the workers, if the employers seek to force upon thenl the ne\v methods of Scientific Managenlcnt in industry. From such complications it is surely the business of the State to hold aloof, and to preserve at any rate the air of impartiality. Schenles for State recognition of enlployers' associations are schenles for strengthening Capitalism by making it State Capitalism. I am far from opposing attempts of the employers at better and closer organisation for the purposes

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which they have in common. In so far as the schemes put forward are merely schemes for co-operation and efficiency among British employers, I have no word to say against them, however much I may differ from some of the views their sponsors hold. The objection begins and ends with the proposal for an alliance between the State and the employers, which would not make for industrial efficiency, but would tilt the balance of power bet\veen enlployers and employed in the wrong direction. I too desire to see that balance upset; but I desire to see it upset in the opposite way. While the present relations between Capital and Labour exist, any approach to forinal or informal partnership between the State and the organised eITIployers \vould amount to a declaration of vvar on l,abour. This would be gross treachery in view of the sacrifices which I~abour has made and the guarantees which it has received. It may be that very great changes are desirable in the relation of the State to industry; but these changes can produce good effects only if the position of the ,Yorkers in relation to the conduct of industry is radically altered. Consolidation on the side of the employers will involve consolidation on the side of Labour, and a greater insistence on those Trade Union regUlations which give Labour a share in the control of industry. Whatever the outcome of these projects may be, it is certain that one of the effects of the ,var will be a great and permanent strengthening of capitalist organisation. This demands an ans\ver froin Labour. The more we mobilise national industrial resources, the more British employers organise, and the Illore the State aids them in their task, the greater becomes the

RESTORATION OF need of the workers for strong Trade Unions to safeguard them against exploitation, overdrive, and bureaucracy. The wholesale abolition of Trade Union restrictions could come only as a result of the decisive crushing of Trade Unionism. This, if it came about, \vould leave employers free to give full effect to a narrow and inhuman conception of industrial efficiency. There are, no doubt, good elnployers, ,vho would not of themselves adopt this policy; but the result of strong organisation is to make the minority conform to the will of the majorit)T, whether it be for good or for ill. If, then, we are to have strong organisation on the side of the employers, we must nlake up our minds to the existence of strong Trade Unions, whose codes of regulations will exert a considerable negative control over industry. Industrial efficiency ,,yill be secured, not by the destruction of this code, but by its trans formation from a negative to a positive code, froln a check on the projects of employers to a positive plan for the control of production. III Long before the \var, \\·e were familiar ,vith the complaints of employers against Trade Unionism on the ground that the Union~ restricted output. This real or alleged feature in I'rade Union rules caught hold of the public imagination to the exclusion of all else, until} in the minds of many quite well-meaning persons, Trade Unionisnl came to be regarded as being simply a check on production, a \vanton interference b~y the workmen ,vith industrial efficiency. A little has perhaps been done to clear a\vay this misconception; but it is still so prevalent that it is very necessary to

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explain precisely \vhat Trade Union regulations are, if the public is to look with favourable eyes on the demand that they should be restored. Those who cherish the belief that Trade Unionism is a monstrous conspiracy for the restriction of output will search the whole literature of the Labour movement almost in vain for anything that \villiend support to their view. Every 'Trade Union has an elaborate code of rules for the guidance of its members, and many Unions have additional Ioca] bye-Ia\vs for each district. But the whole of this vast mass of industrial legislation contains hardly a word regarding restriction of output. Our attention is centred now on the engineering industry, and charges of restricting output are continually brought against the mechanic. Yet one might seek in vain through the whole Blass of engineering Trade Union rules for a word about the subject. 1"here are certain rules goycrning the working of piece-\vork and the premiulll bonus system; but even these are of the most general description, and as a rule go little further than to safeguard for the piece-\vorker his hourly or \veekly rate of wages. Restore the whole of Trade Union rules to-morrow; and you will restore hardly a single rule which has for its object the limitation of output. But, \\There there is so much smoke, it \vill be said, there must surely be at least sonlC fire. If the Trade Union rules \vhich directly restrict output are few or none, what is it that cmploycr~ lnean when they maintain so vehelllently that ~rrade Unions do restrict output? In ans\vcring this question, \ve shall also be giving a rough description of the control \vhich Trade Unions have exerted over industry in the past,

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and of the type of regulation which the Government and the employers are pledged to restore. The answer is twofold. There are actual Trade Union rules which, in the employers' opinion, have the effect of restricting output indirectly; and, besides, there are unwritten workshop customs which have this effect directly. To the skilled Trade Unionist, his skill is in the nature of a monopoly. He has continually before him the fear of unemployment, or of sinking into the gulf of unskilled and underpaid Labour beneath him. He is jealous of his craft, not only because he sees in it an honourable calling, but also because it alone stands between him and poverty or destitution. Less than the lawyers or the doctors, but still with a tenacity born of necessity, he clings to the privileges which he and his fellow-craftsmen have won by their tinited efforts. In order that he may find full employment and shelter himself from what he regards as unfair competition, and also in .order that the status of his craft may be preserved, he resents, and obstructs where he can, the entry of outsiders who have not passed through the apprenticeship, or received the training, which he has received. In fact, he tries to confine his profession to qualified men, just as the middle-class professionals seek to confine theirs. The placing of an unqualified man on a machine of which he has had the monopoly is to him what a brief in the hands of an outsider would be to a barrister, or what an uncertificated teacher is to a qualified teacher. The status of his craft means much to him, and naturally he takes action in order to protect it. Secondly, the skilled craftsman resents the encroachment of other crafts upon his own. He does

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this, partly from an innate conservatism, partly from a feeling of possession and pride in his craft, but most of all from the fear that, if he allows such encroachments, there will be less work for himself and his fellows and he will run the risk of unemployment. As the barrister keeps out the solicitor and vice versa, the fitter keeps his craft inviolate from the plumber, or the shipwright his from the joiner. Thirdly, when new inventions are introduced and machinery becomes more automatic, the craftsman does not willingly give place to the semi-skilled or unskilled worker. He sees himself being gradually ousted from his monopoly, driven into the ranks of the unskilled, walking the streets workless, and, in self-defence, he seeks to confine the operation of the new machine to those who operated the old one. That, in all these cases, his action is perfectly natural it is impossible to deny. It is true that the craftsman's economic position is largely the result of monopoly, and that, under existing conditions, loss of monopoly would mean for him loss of status and of material well-being. Labour is bought and sold in the market as an article of commerce: it is susceptible of monopoly value no Jess than any commodity; and employers, not being' in business for their health,' do not and cannot pay for their labour more than they must. The Trade Unionist's analysis of the existing situation is correct: he must preserve his monopoly if he is to preserve his status, his standard of Hfe, and his economic power. If the structure of society were different, it would be another matter; but, taking things as they are, he pursues the only course that is open to him. That, in a certain degree, these practices limit output

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need not be denied; but such restriction is inevitable under the existing conditions of industry. Moreover, there is another side to the picture. These forms of restriction are among the few remaining safeguards of our national standards of craftsmanship and skill. Their removal might be followed by an immediate increase of output; but this would be purchased not only at the expense of the workers, but in the long run at the cost of industrial efficiency. Industry might do without the craftsman for a while; but sooner or later his removal would result in a degradation in the quality of our national output for which the momentary increase in quantity would be no compensation at all. So far, I have been speaking of those Trade Union rules against which attack is most easily levelled, because they do in fact, however necessarily, limit production in a purely quantitative sense and diminish the adaptability of industry to changing conditions. But it must not be forgotten that many of the Trade Union rules which are suspended at the present time are essential safeguards to health and well-being. Regulations providing for the safety of the worker, limitation of overtime under normal conditions, and many other rules of a similar character, though they may be suspended for a while in view of national necessity, could not be permanently abrogated without the most serious effects. Trade Unionism serves to protect not only the standard of life for the worker, but also the elements of human well-being in the interests of the whole people. So much for written regulations. I come now to those unwritten workshop customs against which such heavy charges are brought. The enemies of Trade

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Unionism profess to believe that these customs constitute a colossal plot against the national prosperity. Ever since the Tinles published its notorious series of articles on The Crisis in British Industry in IgOI, many other\vise estimable people have been convinced that the average British \vorking man is a 'skulker,' and, what is more, that his 'skulking' is the result of a widespread and deliberate Trade Unibn conspiracy. By what fevered process of mind this view was arrived at I do not profess to understand; but it clearly exists, in greater or less degree, in the minds of many people \vho ought to know better. That there are such customs I am not concerned to deny: that they are universal or even widespread I see no shred of evidence to make me believe. Restriction of this type is almost entirely a matter of the spirit prevailing in a workshop. Wanton slacking does not exist except in a few isolated cases; but there is scant inducement for a man to produce all he can if the immediate result is the cutting of his piece-rate, or, in the case of the timeworker, the imposition of a system of practical taskwork by increased supervision and bullying. Firms which are always trying to cut rates cannot expect good work; and it is in such firms that un\vritten restrictions on output flourish. In any case, if a rule is unwritten and rests purely on an understanding among the men in a particular workshop, no power on earth can either suspend or abrogate it without the consent of the men concerned. The firm can, of course, dismiss the men; but if it pursues \vith its new employees the methods which led to the practice of restriction, the process will soon be repeated. If such un\vritten customs are suspended during the war, it is partly because piece-rates

RESTORATION OF are legally protected, but far more because of the patriotism of the workers. If they revive when the ,var is over, it ,vill be because firms have returned to their old practice of rate-cutting. The average worker will gi\re a fair day's work for a fair day's wage and a fair day's treatment: he will not seek to make extra profits for the employer who is always trying to reduce his standard of life. This, no doubt, will fail to satisfy the advocates of 'scientific' speeding-up, who \vant more than a fair day's ,vork; but it is surely enough to satisfy those \vho take a reasonable view of the conduct of industry. I do not for a moment suggest that Trade Union regulations are perfect, or, indeed, free from very grave faults. But I have sought to emphasise the fact that they do form an absolutely necessary safeguard for the workers under the existing conditions of industry. There are many' respects in whicll they might be with advantage greatly modified; but no modification can be suffered unless it affords to the worker by some other means the protection hitherto afforded by the regulation \vhich he is asked to surrender. We cannot have it both ,vays: we cannot both secure the greatest possible efficiency and reduce the mass of the workers to a condition bordering on serfdom by the abolition of their Trade Union restrictions. We must in any case go ba~k to the old conditions in order that the pledges given may be redeemed: and, having gone back, we must either go on along the old lines, or find a better way. If we try the second course, we must be prepared for drastic changes in the organisation of industry. Restriction can be done away with by the granting of a measure of real freedom and self-government to the workers, but for this our prophets of the

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new industrial era seem, for the most part, singularly ill-prepared. Indeed, the proposals which are now finding increasing favour in the eyes of many employers make precisely in the opposite direction.

IV It is becoming a commonplace that lack of science is the foundation of industrial inefficiency; but there is a curious irony in the fact that our first attempt to apply scientific methods to industry is directed to the sphere in which they are least applicable·-the management of men. There is ample room for science in the organisation of industry, not only in the departrrlents of buying and selling and in the \vork of research, but in the better co-ordination of manufacturing departments, the provision of better plant, and improved methods of departmental organisation. But the tnle sphere of such scientific organisation lies in the management of machines, and any attempt to apply it blindly to the human element in the workshops is doomed to failure. -If the current plaints about the 'unscientific methods' of British industry show anything, they show that the roots of inefficiency are in the employers far more than in the workers. If \vorkers restrict production on occasion, and with good excuse, so do employers, far more consistentl)T and with far less excuse. Most of the restrictions imposed by the workers are unavoidable attempts to provide essential safeguards. Employers' restrictions can claim no such justification. Many are limitations of output for the purpose of keeping up prices; and a still greater number are the result of a failure to apply science in

RESTORATION OF its proper sphere, the control of the inanimate machine and the \vorkshop. The temptation for the employers is obvious, and it is not unnatural that many of them have fallen easy victims. The abrogation of Trade Union restrictions during the war has enabled them to make very large changes in management, and to experiment on an unprecedented scale in new methods of production. In many cases, employers have been consciously utilising the changed conditions for the purpose of such experiments, and have been collecting elaborate data and drawing conclusions of an alarmingly revolutionary character. In this, there can be no cause for complaint; but there may well be abundant causes of friction if the conclusions are hastily or incorrectly drawn, or if the en1ployer, in his search for efficiency, presumes to treat the worker merely as a necessary part of the equipment of his factory. These are very real dangers. In the first place, the employer may well be led to generalise too rashly, and to apply too readily the ideas which he draws from the \vholly abnornal conditions of war-time to the quite different conditions of ordinary commercial production. And, secondly, fixing his eyes on the purely mechanical aspects of his war-time experiments, he may ignore the psychology of the workers, \vith results fatal alike to himself and to the community. That great caution is needed in applying the lessons of \var to the conditions of peace is an obvious fact that is, nevertheless, too often overlooked. 'Munitions' are, on the whole, standardised articles, to be produced in vast quantities by an infinite repetition of the same processes. Commercial work, on the other hand, despite actual and probable advances in stan-

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dardisation, is very different in character, and must continue to possess far greater variety and to call for a more varied skill or dexter~ty. On pure repetition work, the human factor is necessarily reduced to a minimum, and, \vhere the activity of a factory is concentrated on such work, remarkable results can be achieved in the way of output. That the effect of the ,var will be seen in a permanent increase of standardisation is not open to doul)t; but it is a far cry from this to the belief that ,var experience has proved the skill of the trained \vorker to be unnecessary. If this view is any\vhere held, a short experience of normal conditions \vill be enongh to dispel the illusion. \Vhatever practice may prove or disprove in the period after the \var, it is certain that there is a \videspread belief among employers that ne\v methods of workshop organisation, based on \var-time experiments, require to be devised and put into effect. Clearly, then, we may expect thenl to put their heads together about those ne\v ideas, with a vie\v to securing, as far as possible, their general adoption.

This putting

together of business heads, indeed, may well be one of the most important functions of the new largescale Associations of Employers \vhich are arising at the present time, and the attitude of such Associations will be a factor very greatly to be reckoned with in the period after the \var. In discussing these ne\v theories of industrial organisation, we wish to go straight to the root of the whole matter. It is obviously desirable, if the question of production is regarded in the abstract, to secure the greatest possible efficiency and the greatest possible output. But it is no less true that the question of production cannot be abstracted or isolated from C.S.G.

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the industrial problem as a whole, and that any attempt to isolate it must lead to wrong and misleading results. Asked to assent to the general proposition that it is desirable to secure the greatest possible production, we cannot but ans\ver in the The more we produce the more we have affirmative. to distribute." Nothing can be more certain. But these abstract propositions cannot by themselves form the basis of a reasonable social theory_ Increased production may be secured at the expense of drudgery and slavery for the mass of the people. There may be 'more to distribute'; but how are \ve benefited if it is not distributed aright, or if, in our efforts to produce more, we lose those condftions of the ' good life' \vhich are essential if the product is to be enjoyed by the mass of the people ? The fallacy oi abstract thinking vitiates n1any of the new economic gospels. We are hearing much in this country to-day of Scientific Management, as the latest form of ' efficiency economics.' In the United States, where they worship labels and grow lyrical over concepts more easily than here, an almost Biblical literature of adoration has grown around the theme of Scientific Management in industry. This country, however, long remained almost unaffected. Before the war, only isolated firms in Great Britain had adopted isolated devices of the 'Scientific Manager.' The Premium Bonus system was among us; but it was not backed by the quasi-religious sanction \vhich similar devices possess in the minds of many American 'bosses,' and there had not been, except in a few cases, any general theory of 'scientific' organisation behind it. The war is changing all that. The fact that this II

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is an 'engineer's \var' is helping those who desire the canonisation of the n1an of business to get a sympathetic hearing. If \ve are not americanising" our phrases, we are, to a considerable extent, 'americanising' our ways of thinking about industry. In some respects, this may he all to the good, if it stimulates a keener interest in business methods and in workshop organisation throughout the \vhole working community. But, unfortunately, the manner in \vhich the change has come about has not been such as to produce breadth of outlook. Throughout the war, the Trade Unions have been yielding inch by inch the control \v4ich they have gained over industry, and the employers have been winning the territory which the Unions have lost. The map of industry has been changed by the \:var: much of the territory of the Trade Unions is in the occupation of the employers: but guarantees have been given, and alike on account of these guarantees and of justice itself, the Unions are not prepared (( to negotiate on the I

basis of the war-map."

On the other hand, the em-

ployers, with the new gospel of efficiency in their minds, are likely to prove recalcitrant when they are asked to go back to the old conditions. As the German militarists covet Belgium, they covet the territory of 'frade Union restrictions. A very important party to the possible dispute bet\veen the employers and the Trade Unions will be public opinion. Public opinion ,vill, no doubt, be to some extent conscious of the force of the argument that the promises made to I.Jabour must be redeemed; hut it may ,veIl be lukewarm in its action, and even hostile in its attitude, if it believes that the Trade Unions are really standing in the way of efficiency at

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a time \vhen the national interest is to strain every nerve in the task of national restoration. \Ve must not then be content to rely on the strength of the definite promises made to Labour by the Government: \ve mnst also try to show why it is vital in the national interest· that Trade Union rights should be restored. The ideal of Scientific Management, and the ideal of the average pushing employer of to-day, do not, I believe, really minister to industrial efficiency. There are many things in Scientific l\Ianagement with \vhich I have no quarrel-many concrete suggestions \vhich make · for better organisation \vithout reacting unfavourably upon the life of the \vorkers. But this is not true of the central and unifying principle of Scientific l\Ianagement. That principle is that not only direction and management, buying and selling and the general organisation of production, but also every possible detail of execution must be concentrated in the hands of a special caste of experts. Not only originative effort of the mind, but also that variety and self-direction \vhich are the basis of manual skill, are to be taken from the ordinary workmen, and placed in the hands of a select fe\v, \vhose special functions and training will effectually isolate them from their fellows. That it is futile to resist the process of specialisation in industry I fully agree; but that is ,'ery different from agreeing that the advance of specialisation inevitably implies the creation of a cast-iron industrial bureaucracy. It is essentially towards such a bureaucracy that Scientific Management is moving, and this tendency is bound to arouse the fierce opposition of the \vorkers whose" freedom and independence are

TRADE U:r\ION CONDITIONS

53

threatened by it. It is true that the opposition of the ,yorkers to new processes has in the past often been mainly the result of a desire to safeguard earnings and the standard of life; but the capital mistake of even the more enlightened advocates of Scientific Managelnent is to imagine that the safeguarding of "rages, or even their increase, ,vill suffice to remove the grievance, or disarnl the opposition, of 'rrade Unionism. The safe-guarding of wage-~ates against unfair cutting and diminution is an essential step if the level of production is to be raised; but it can do little to remove the strongest objection to Scientific l\ianagemente Higher wages ,viII not nlake less dreary or automatic the life of the \vorker \vho is subjected to bureaucratic expert control and divorced froin all freedolll and responsibilit)T. The result, then, of the relnoval of the pre-war Trade Union restrictions \vithout the provision of a constructive alternative satisfactory to the \vorkers would sho\v itself certainly in friction and industrial conflict on a large scale, and most probably in the

driving of Trade Union regulations underground. As we saw, many of the Inost powerful regulations are un\\rritten custonlS which rest sinlply on an almost tacit understanding anl0ng the men in the shops. These cannot be removed except by removing their cause, the suspicion-so often \\7ell-founded--of the employer's intentions, and the desire to cling to them as the only safeguard for freedolll in the workshop. Such a change cannot be wrought in a day or a yearindeed it cannot be \vrought at all while the present economic structure of Society exists. The building of a better system, ho\vever, will in all probability be gradual, and, meanwhile, the Trade Unions must

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receive back the pre-war code which in the past has been their sole protection. I am fully conscious, that, if we set out to oppose the ideal of Scientific Managen1ent, ,ve must set up in its place an alternative ideal which ,viII provide for a better organisation of industry and a fuller utilisation of national resources. I have outlined the nattlre of Trade Union restrictions as they have been in the past, and dwelt then upon the fact that they are the neces~1.ry and inevitable outcome of the circumstances in which those who framed them ,vere placed. If, then, the old circumstances recur, it is absolutely certain that the old restrictions '\lill return with them. And, if new conditions more oppressive to the workers than the old conditions are created, new restrictions will be devised to meet them. Those who desire the establishment of a more free and efficient industrial system must be prepared for the drastic changes ,vhich alone can make such a system possible. V The Times is expert at the art of speaking with two voices-of mixing the honey of a special correspondent with the gall of a leader writer. In January, 1917, it published a series of articles dealing with the restoration of Trade Union customs, and it ushered in this series with a 'leader' upon the question. The special articles did justice to the enornlOUS sacrifices which the Trade Unions have n1ade during the ,var; the leader writer, commenting upon them, rounded upon the Unions, and accused the rank and file of every kind of obstructionism. The special articles, since republished under the name of no less a person than

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55

Mr. Sidney Webb, set out to prove restoration to be impossible. I t is upon this phrase, now so familiar to us all, that I want to concentrate attention. Is restoration impossible? And what do we mean when we ask whether it is impossible? The special article in the l'i1J'zes attempted a description of the character and effects of Trade Union rules and customs. It was sho\vn, as I have tried to sho\v, how \vide a range of questions is covered by these written and unwritten laws of industry, and it was clearly recognised that the Government pledge of restoration includes not only written and recognised rules agreed to between employers and employed, but the whole system of workshop practices, whether written or unwritten, agreed or resting purely upon an understanding among the men in the shop. What does the J'itnes leader \vriter mean when he says that this network of "Trade Union customs cannot be restored? Clearly he cannot mean that, in all these cases, restoration is a sheer impossibility. He can only mean that there are some customs \vhich it would be very difficult to restore, and some \vhich, in his opinion and in that of the majority of employers, it would be very undesirable to restore. This clearly is very far removed from impossibility, and the effect of generalisations about the inlpossibility of restoring Trade Union customs is misleading, and often \vilfully misleading. Let us look at the matter rather more closely. No one doubts that the honour alike of the employers and of the nation is absolutely pledged to complete restoration. This is clearly stated both by the Times leader writer and by !VIr. Webb. Admitting the full force

RESTORATION OF of the pledges given, they fall back upon the impossibility of redeeming them. It is, we think, clear that the word ' impossibility' really covers severa] distinct difficulties in the way of restoration. In the first place, it is urged that machinery and methods of manufacture have undergone during the war many changes which must be in their nature permanent. New plant has been installed, and this new plant differs from the old: operations have been subdivided and standardised in ways upon which it would be very diffIcult to go back. Secondly, the war has introduced into industry new conceptions of effIciency. Men and machinery alike have been running at speeds hitherto unknown, and the employer has learnt to expect a far greater output from each worker than he either got or expected before the war. In this greater output he sees an unprecedented chance of successful competition in the world's markets, and accordingly he proc1aims that any interference with the changes introduced during the war will be' fatal to the future of British industry. These two arguments must be faced separately. For the first argument there is obviously much to be said. The changes in machinery which have come about during the war period will undoubtedly be, in many cases, permanent. In this connection, the effect of the war has been merely that of compression into a couple of years changes which, under normal conditions, it would have taken probably twenty or thirty years to bring about. It is true that the manner in which the change has come about has had evil consequences for our industry as well as good, and that our methods of production would, had there been no war; have developed in a manner better suited in the

TRADE. UNION CONDITIONS

57

long run to British industrial conditions-in the direction of production for quality rather than quantity; but, the change having COlne about in an abnormal manner, it is impossible to put back the hands of the clock. The new machinery has come to stay, and anything about it that is too American' to suit British conditions can only be eliminated by the tests of time and experi'ence. 1"'0 this extent, then, there is a real obstacle in the ,yay of complete restoration of Trade Union customs; but it is eas)T to exaggerate the extent to which this stands in the way of restoration. In point of fact, it leaves the great bulk of Trade Union customs altogether untouched. The second difficulty adduced we have described already. It is urged that British industry cannot succeed in world competition unless the present level of output is maintained, and that this cannot be done if 'frade Union customs are restored. This vie\v involves two assumptions, each, in our opinion} less than a half-truth. First, it assunles that the British worker, I

working at his pre-war intensity, but \vith improved

machinery, cannot compete in the world market; and, secondly, it assumes that the restoration of Trade Union cllstolns \vill necessarily constitute a serious check on output. Even if both these assumptions were true it would not follo,v that the worker would be reconciled to the loss of his Trade Union regulations and customs. If, as the employers maintain, the pernlanent abrogation of Trade Union customs would nlean an immense increase of both output and profits, the \vorker has still to be convinced that his position will be improved thereby. And, in order to do this, the employer must show not only that he \vill be able to pay higher wages,

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but also that he will actually pay higher wages, and go on paying them: not only that his business will be more prosperous, but also that the worker will be sure of regular employment at higher wages; not only that the worker ,viII be better off in a material sense, but also that the power of Trade Unionism will be in no way impaired. All these things must be proved to Labour, before Labour can be expected to fall in with the employers' schemes. But are the employers' assumptions true? ~Iust the workers after the war go on working at the pressure at which they have worked during the war? They cannot do so, and they ought not to do so. Of course, if man were a tireless animal, capable of twenty-four hours' work a day without overstrain, he would be a more profitable servant to his employer than he is now. But man is not a mere wage-slave, and it is not an object of ambition that British industry should prosper if thereby the lives of the \\rorkers are to be made not worth living. High wages combined with security furnish no compensation for a life of unremitting toil; and we shall do ,veIl to refrain from accepting that capitalist philosoplly in which ' Output ' is God. The mere fact that the abrogation of Trade Union restrictions would increase output is not a reason why they should not be restored. It does not even prove restoration to be undesirable, and still less does it prove it impossible. l\Iany Trade Union customs are essential safeguards of the good life for the workers; and to the abrogation of these customs Labour cannot consent. The pledge has been given, and the employers and the Government are bound to. restore what they have taken away. There are, no doubt, Trade Union customs which do

TRADE UNION CONDITIONS

59

hinder output without being inevitable necessities for the protection of Labour's freedom and standard of life. But most of these regulations have been inexorably imposed upon l~abour by the practices of the employers, and, unless the employers suffer a change of heart and outlook, these cannot be given up. Here, again, the employer, if he desires their removal, has not merely to make fair promises, but to show clearly three things to those whom he asks to surrender the custom. First, he has to show that \vages will be increased and maintained permanently at a higher level. Secondly, he has to show that the liability to unemployment of those to whom he is appealing will be lessened. Thirdly, he has to show that Trade U l1ionism, and the particular Trade Union concerned in the immediate proposal, will not be weakened in its bargaining power for the future. If the employers, or the Government, can prove these three things, they have a case with which to approach Trade Unionism \vith a request for the withdrawal or modification after the war of those particular regulations which are not vital to the health and wellbeing or industrial freedom of the \vorkers. But, at the most, they have only a case for asking to be released from their pledge in particular instances. Such individual instances the Trade Union should, and no doubt will, be prepared to take into consideration upon their merits; but such considerations of individual cases lnust not interfere with the general restoration of all Trade Union customs that are not in this way specially excepted. The absolnte and literal restoration of every Trade Union rule is 110t t impossible,' though it would be difficult and, in some cases, no doubt, undesirable in the interests of both parties;

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but absolute, literal, and general restoration must continue to be the basis of the Trade Union demand. Particular exceptions can be made to suit particular difficulties; but those who argue that restoration is impossible as a general thing can only be suspected either of desiring to queer the pitch by preparing public opinion for a disastrous breach of faith, or of being, like ~Ir. vVebb, so desirous of pushing tlleir private panacea of State intervention as to care nothing in comparison for the rigllts and liberties of the Trade Union movement. '-That lnust not be allo\ved: restoration must be accorded not only in the spirit, as interpreted by the emplo}~ers and the Government, but also in the letter, as interpreted by the Trade Unions. That alone is the course of honour, and we believe that it is also the path that is m03t likely to lead to national prosperity, both industrial and social. For there is really no reason for assuming that, if industry is to prosper after the ,var, the employer mllst be given a free hand from Trade Union restrictioI1S. Both employers and \vorkers in the past haV"e impeded output, and the \var has cleared a\vay at least as many restrictive practices of the employers as of the \\Torkers. The moral surely lies not in freeing the employer from the dell10cratic industrial legislation of the Trade Unions but in endeavouring to get an industrial system that will secure both efficiency in industry and a good life for the whole people. If this is to be our aim, surely the worst way of setting about it is to refuse to restore Trade Union customs. Only when the Trade Unions are placed once more on an equality with the employers by the full restoration of what they have given up will it be possible to set about the

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61

task of framing better industrial conditions and better legislation for the future conduct of industry. This is the \vay of democracy, and \ve are convinced that the only way in \vhich our industry can be put on a better basis is by the fullest possible recognition of the workers' right to a real measure of industrial self-government. VI What is the future of Trade Unionism? A question so broad and general, seeming to assume a central principle \vhere it may be held that there is none, \ve must nevertheless attempt to ans\ver if \ve would find even a provisional reconstruction of industry after the war. We have already sought to describe, from a practical point of view, the manner in which Trade Union regulations have grown up, and the purpose \vhich sustains them and ,vill call for their restoration. Now, we must try to go deeper, and to describe the , philosophy' that is behind the Trade Union movement. Only by ans\vering the question \ve have put can we get to kno\v the true position of Trade Unionism in the industrial system. Trade Union rules, \ve have seen, are not meaningless drags upon the wheels of production: they are means \vhereby the workers strive to exercise at least a negative control over industry. Trade Unionism is largely a critical force imposing negative restrictions. The effect of this is obvious. As long as the only power of the Trade Unions is to deny, they \vill inevitably remain to a considerable extent restrictive forces, and their effect on industry \vi]] be, in some degree, that of limitation. There are only t\VO conceivable \vays out of this difficulty. One \vay is the bad and

RESTORATION OF foolish \vay of smashing Trade Unionism, and so giving free rein to the employer: the other is tIle conversion of the negative control hitherto exercised by the Unions into a positive control, by placing in their hands executive and legislative po,ver. If it is agreed that it is undesirable or impossible to smash Trade Unionism, it mllst be agreed also that it is necessary to allow Trade Unionism to develop along the lines of responsibility and independent control. If it is agreed that negative control is unsatisfactory, the time has come for a bold experiment in positive control. Trade U nionislTI, then, seeks to control industry by means of regulations which are at present mainly negative in character. These rules are not always wise or necessary, and there are many points in which they could well be modified with advantage to both sides; but any attempt to set aside, except by consent, any rule which has been guaranteed dllring the war, \vould be not only a breach of faith, but a national calamity. We can only transcend the negations of Trade Unionism by putting some sort of positive control into the hands of the workers. If this is the position from the side of Labour, what of the employers? We saw that the new gospel of Scientific Management runs directly counter to the ,vorking-class demand for freedom and responsibility in industry, and that, however much particular devices of the' scientific manager' may have to recommend them, the philosophy underlying the system is one of pure alltocracy, or at least bureallcracy. The demands of employers and employed thus seem to be diametrically opposed-the employer demanding a free hand in the application of science to the management of his

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employees, and the workers demanding a greater measure of self-government both in the workshop and in industry as a whole. With greater or less clearness, this opposition of industrial philosophies is realised, and numerous devices for circumventing it are in the air. We are hearing much about projects for the granting to the workers of a share in workshop control. As a rule, these projects remain so vague that it is difficult to say anything either for or against them; but there are at least t\VO schools of thought which are advancing suggestions definite enough for criticism. In the first place, National Guildsmen clearly know what they want. Their aim is a partnership between the State and Labour, accompanied by the abolition of the system of capitalist production. They do not hope to achieve this object at a blo\v, and they ar~ prepared to consider any step in the right direction, provided it is t without prejudice' to their right to go further, and will not tie their hands when they come to ask for more. Anything less than their ideal they "",'ould regard as a mere t instalment' ; but they are, for the most part, quite prepared to consider instalments on their merits. Doubtless, National Guildsmen are, numerically, only an insignificant fraction of intelligent Trade Union opinion; but the point of view for which they stand r~presents, with greater or less accuracy, the general trend of advanced Labour thought. There are very many Trade Unionists who, neither accepting nor rejecting their ideal, are at one with them in holding that the next step of the Trade Unions must be in the direction of con t.rol. On the other side, we have a growing school of

RESTORATION OF capitalist opinion \vhich is prepared for the extension of a measure of control to the workers. This school employs many of the same phrases as ' National Guildsmen': it too speaks of control and of " giving the workers a share in the direction of industry"; but, generally, it attaches a very different meaning to these phrases. When we National Guild advocates \vrite of ' workshop control,' we regard it as only a first step in the direction of a completer measure of industrial selfgovernment, and \ve explain clearly that it is to us not the end in view, but merely a means to that end. On the other hand, those \vhom \ve may term the , capitalistic' advocates of \vorkshop control regard it both as an end and as a means-as an end, because it seems to them to grant in full the workers' claim to a share in the direction of industry, and as a means, because by it they hope to secure industrial peace and to ensure the continuance of the existing system. Bet\veen these t\VO points of view there can obviously be no final reconcilation, and the only practical question is \vhether there is son1e concrete proposal in which \ve may find, not what either wants, but some real advantage to Labour \vhich is capable of immediate realisation. There are certain conditions which any such immediate measure must satisfy, if it is to secure acceptance. I t must assure the continued freedom of action and independence of the Trade Unions, and it must afford to the organised \vorkers an opportunity to play an increasing part in the control of their working lives. A provisional scheme that would satisfy these COllditions seem~ to me to be quite practicable, even if it is not at all likely to be realised.

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65

VII I am not numbered among those who fear that the forces of reaction will successfully devise means of securing the harmonious co-operation of Labour in capitalist production. Indeed, such a view seems to me to rest on an entirely mistaken conception of the character and intensity of class feeling, and of the effects produced by the war in the industrial sphere. We hear much in these days of the 'brotherhood of the trenches' as a solvent of all social and economic animosities. If I am sceptical, it is not because I doubt that an element of comradeship does exist' over there,' but because I have my eyes also on the workshops at home. Whatever may be the position in France or Salonika, the effect of the \var in this country has been a widening of class divisions, so that only a precarious unity is maintained in face of the common need. Nor do I believe that the ' brotherhood of the trenches' will itself survive the ordeal of demobilisation. It is one thing for a body of men, united in facing a common danger, to achieve a limited comradeship; it is quite another for comradeship to endure when the danger has passed and the bond of common action is broken. '[he returning soldiers, officers and men, will be scattered far and "vide: they \vill rcenter the social groups which they left at the call of \var, only to find the old animosities persisting and the old problems still demanding solution. Their new environment will recall the comradeship of the pre-\var grouping; and the chances are that class loyalty ,vill make short ,york of the solidarity of the classes. The idea of industrial harmony arising naturally from the experience of war is a chimera. The future C.S.G.

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of industrial relations will be determined, not by the success of certain emplo)1ers in inducing certain I.-abour leaders to b~lie'Te that they are not such bad fellows after all, but by the spirit of the men in the \vorkshops. The spirit of industrial disarmament, despite 1.\lr. John Hodge and his like, is not really dangerous; and the National Alliance of Employers and Employed is not likel)T to survive for long the restoration of peace-time conditions in industry. . There are two, and only two, roads along which the development of industry can proceed. One is the road of reaction, the other the road of democracy. The philosophy of the one is the philosoplly of expertism and bureaucracy; the philosophy of the other is based on the principle of self-government. Either we must follow the road of Scientific !\Ianagement to its goal in an absolute division of industrial classes both by function and by idea, or we must follow the road along which advanced Trade Union thought is travelling towards the wide diffusion of self-government among the manual workers. The second view alone is consistent with any real democracy. Ollr political machinery assumes, and is based upon, the principle of self-government; and, however ill fact asserts with theory, UpOIl this principle there can be no going back. But if democracy is assumed to be good in politics, can industrial autocracy hope to remain unchallenged? The growth and power of Trade U llionisln are the form and substance of the challenge; and the case in their favour is precisely tlle case which was put forward by advocates of representative government wheon the very notion of popular sovereignty was a revolutionary political concept. May we not, then, expect that the development of self_

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67

government in industry \vill be marked by stages similar to those by \\7hicll our political systetTI has been developed? Beginning as a half-articulate challenge to autocracy, then gaining recognition as a critical force, Parliament became after centuries of struggle the legislative body and subordinated to itself the executive. Moreover, the paralysis of government was greatest at those times when Parliament possessed a recognised right of criticism, but had not yet secured full legislative power or direct control of the executive -in fact, while Parliament \vas a negative and restrictive force. In the same wa)', the self-government of the workers begins in a half-articulate form in the early struggles of the Trade Unions, and becomes a recognised critical force with their rise to po\ver and influence. But, at this stage, their influence is still restrictive, because they have no direct po\ver of industrial legislation and no direct control over the industrial executive. Only with the concession of this direct and positive povler will the restrictive period end, and democracy become the ruling principle of industrial organisation. There is indeed much to be done both in the Trade Union movement and elsewhere before such a change can come about; but it is necessary that we should look ahead as far as we can. The policy which we adopt after the war may \vell determine for a le>ng period the nature of industrial relations, and only on a long view shall we be equal to the task of framing it. The measure of direct control which it is possible for the \vorkers to assume after the \var may not be very great; but if it is assumed in such a manner as to make its development easy, there is good hope that great results may follow from small beginnings.

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The obstacles in the way of a solution of the problem of industrial self-go\Ternment are formidable, but not insurmountable. One of the greatest is the lack of broad-minded and imaginative leadership in the Trade Union vvorld. The vast mass of both leaders and rank and file have neither a clear conception of the purpose of Trade Unionism, nor a considered policy even on immediate issues. They are too often conservative with a conservatism based more on prejudice than on reason. But, if this seems unpromising material to build vvith, we must remember that we have no choice but to build. Trade Unionism is powerful enough as a disturbing force for even those who do not see the justification for the trouble it makes to seek a better outlet for those aspirations by \vhich the trouble is caused. The Trade Unions, then, may well plead for public sympathy in facing these internal problems of organisation. Every elTIployer and every Trade Unionist kno\vs t11at one of the biggest obstacles to the advancelnent of Trade Unionisn1 is the disorganisation of the Trade Unions themselves. The eternal bickering of section with section is an annoyance to employer, public, and \vorkman alike, and impedes both the selfexpression of the workers and the free development of industry. Under any industrial conditions, some rules of demarcation bet\veen sk.illed trades are necessary and inevitable; but the separate existence of a large number of sectional societies tends to produce, instead of reasonable regulations marking off one trade from another, a vast medley of conflicting decisions based on no principle except the desire of each trade to secure the monopoly of the greatest possible amount of work. In the sphere of demarcation be-

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tween skilled tradesmen, there is ample room for logical readjustments which would be for the good of everyone concerned, for employers as well as workers and for industry as a whole. Such readjustments \vill, however, continue to be in practice very difficult while the illogical organisation of the workers in many distinct craft Unions persists. It is therefore to the interest of the ,vhole industrial comIllunity that amalgamation of Trade Unions should be made as easy as possible. Demarcation is a term restricted to the relations between skilled tradesmen. \Ve come now to a no less fruitful cause of dispute-the relations bet\veen skilled and unskilled. Broadly speaking, it may be said that, whereas the Unions of skilled workers are always striving to restrict large classes of work to their own members, the employers are always trying, as far as they think prudent, to establish their right to employ any man or woman they please on any job. From this arise disputes betvveen the Unions of skilled and unskilled workers as well as disputes between \vorkers and emplo~yers. Some way of settling these disputes by arrangement among the Trade Unions themselves is urgently needed, and it is to be hoped that some such settlement will be arrived at ,vhen reorganisation is being considered after the war. I'he unqualified ,vorker demands greater opportunity for the use of his labour and for the acquiring of skill ; the skilled \vorker security for his standard rate and sometimes monopoly of the job for skilled Inen. Much of the friction which arises in such matters is purely accidental or incidental, and might ,veIl be avoided if better means existed for settling such questions between the various grades of workers.· Here again the

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problem is one of both machinery and spirit; but the spirit \vhich is essential for solution will result only from the provision of reasonable machinery. National conferences of employers and ,vorkers will presumably hav'e to meet for the discussion of after-war conditions. \Vhen they do so, it is above all important that a11 grades of \\yorkers should be able to go to them with a united policy. I am not suggesting, and I do not believe, that after-,var conditions afford an opportunity for a fundamental reconstruction of industry. I aln seeking, not a final settlement of the question of industrial relations, but a provisional solution. I think the war is, in fact, more likely to lead for a time to a weakening than to a strengthening of Labour's forces, and that this is almost entirely the fault of Labour. Of one thing at least I am sure: that if on any pretext or in return for any alternative, Trade Unions allo,v themselves to be baulked of the restoration of their customs and rules, they will be laying up for themselves a legacy of sorro\v and repentance in the years to come. Trade Union regulations are largely the basis of Trade Union strength, and the visible expression of Trade Union control in industry; and to these things there can be no alternative. Even, therefore, if ~Ir. \Vebb dangles the dainty carrot of State intervention before the nose of the Trade Union donkey, it is to be hoped that the Trade Union will prove itself not quite such an ass as it sometimes seems.

CHAPTER III THE NATURE OF THE STATE

I

IT has often been said that, if men would only agree upon the definition of the terms they use, they would have nothing left to quarrel about. This is probably true; but it is the less important because the definition of terms is the last point on which men are ever likely to agree. If I begin this book with a definition, it is because that definition will plunge me at once into controversy. and furnish the readiest opportunity of explaining my general position. What is a State? A State is nothing more or less than the political machinery of government in a community. The civilised world of to-day consists of a number of politically independent and sovereign communities, of which many have other communities dependent upon them. Each independent community expresses itself in its relations to the others through its machinery of government, i.e. through the State. Each independent community, and most of the dependent communities, use their States also for many internal acts affecting the relations of individuals and groups one to another and to the whole. States are thus governmental institutions existing to express common

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purposes and undertake common aetions on behalf of communities. In every community there are many forms and instances of common action in which the State has no part. Within each community, and often extending into several communities, there are innumerable forms of association \\Thich are no part of the State. The sum total of organised corporate action in the community is far greater than the action undertaken by the State, the degree in which it is greater depending upon the extent to which co-operation prevails in the community, and on the sphere of action marked out for itself by the State within the community. For two different things two names are needed. When I have to refer to the organised machinery of government, national and local, I shall speak of ' the State.' When, on the other hand, I have to refer to the whole complex of institutions fO,r common action in the comlnunity, I shall speak of Society.' State, Churches, the Labour Movement-these and many other institutions are included in the term t Society.' But both the State, or governmental machine, and Society, the complex of communal institutions, are distinct from the cOlnmunity itself, which stands behind them and sllstains them. Society is tIle mechanism of the communal will; but that \\Till resides only in the community itself. Here already are all the materials of a logomachy. All these special associations, I shall be told, are just as much a part of the State as the Government itself; for the State is the community, and there is no difference betvleen them. Such an argument takes my breath a\vay; but it is with this facile identification of the community and the State that the advocates of State I

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Sovereignty throw dust in the public's eyes. The answer to it is simple. If the State is the community, and the community the State, why all this pother about the sphere of State action? Why advocate or oppose State Socialism, since it is manifest that, however our industry may be organised, it is the State that organises it? \Vhy denounce the Trades Disputes Act-are not the Trade Unions a part of the State? Why do the Majority and l\iinority of the Poor Law Comnlission thus furiously rage together---is not even the Charity Organisation Society a part, and no mean part, of the State? Surely these questions suffice to show ho\v fatal it is to use a vital word in two different senses. 'rhe State seems to be the community, and can plausibly be put forward as the· community, simply because it does claim to be the supreme representative of the community, and because it does at present hold a position of such po\ver as to Inake its influence in the community sl1perior to that of any other association. But all this is merely a question of fact. The fact that the State claims to be the comlnunity, and in fact exercises the greatest part of the community's power, does nothing to prove that the State is rightfully the community, or its sole representative, or that it has an absolute claim upon the individual's loyalty and service. OUf definition has carried us a certain distance. We ha ve seen that the State is different from the community, and that it is not the only institution in the community. I'hat being established, we can repeat our original question in a new {ornl. What is the real nature of that goyernmental machine which ,ve have agreed to call (the State'? The question ,viII certainly give rise to an interesting variety

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of answers. The Anarchist ,viII tell us that the State is the protector of property, and that with fhe passing of Capitalism the need for the State, and the State itself, will disappear. The Philosophic Radical ,vill tell us that the State exists to remove the hindrances to the good life, and, in doing so, to promote the greatest happiness of the greatest number. Tlle Collectivist will hold out the ideal of a State democratically controlled or~qnising the whole national life in the common interest. Lastly, the Idealist philosophers will maintain that the State is the supreme expression of the national consciousness, and that in it alone is the will of the individual fully realised. But suppose none of these ans,vers satisfies ussuppose we say that they are not definitions at all, but descriptions of what their makers·believe that the State does or might do-where then shall ,ve seek for a bett~r answer and a truer definition? We have maintained that the State is a machine. let us take the machine to pieces and see of what it is made. At different times and in different places, the State has assumed many forms; and its actllal character has always borne a close relation to the social structure of the cOlnmunity in which it has existed. Feudal communities found expression in feudal States, or rather created feudal States to be their expression. In the same 'vay, modern capitalism has created the capitalist State, and the States of to-day faithfully reflect the social and economic structure of the communities in which they exist. Wealtll dominates them, as wealth dominates the social life of to-day; beginnings of democracy modify their capitalist character, as the social autocracy of capitalism is already

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challenged and modified by the beginnings of social democracy. The real action of the State in any time or place is, then, determined by the distribution of power in the cOlnmullity. Political po\ver is in itself nothing: it is important not for itself, but as the expression of social po,ver. This social po,ver may assume many forms-mi1itary, ecclesiastical, agrarian, economic, industrial--but, under modern conditions, it is inevitably in the main economic and industrial in character. Whatever may have held good in other times, it is true of our own that economic po,ver is the key to political power, and that those who control the lneans of production are able, by means of that control, to dominate the State. Nor is their po,ver dependent on an actualorganisation of the machinery of State in their interest. Howeyer the State may be organised, and whatever parliamentary system may exist, economic dominance win find its expression in political dominance. It is a commonplace that Great Britain to-day is an oligarchy equipped with democratic, or partially democratic, political institutions. The fact that these institutions are largely denlocratic in form does not make them democratic in practice, because the p~wer of capitalism stands behind the State. Capitalism controls the funds of the great parties, and thereby controls their policies: Capitalism controls the press, and thereby twists and deforms public opinion to its o\vn ends: and, even if these expedients fail, no Government. dares to run seriously counter to the wishes and interests of the great economic magnates. I do not say that this domination of capitalisnl is absolute. Small things can be done, and small reforms

NATURE OF THE STATE secured, against its will; but it cannot be seriously threatened by political means. In politics, democracy can nibble, but it may not bite; and it will not be able to bite until the balance of economic po,ver has been so changed as to threaten the economic dominance of capitalism. Then . maybe, politics will become a real battle-ground instead of an arena of sham fights; but the power of the disputants \vill be still the economic power which stands at their back. The external forms of State organisation, therefore, do not serve, under existing conditions, to deterlnine the real character of the State; for, whatever these forms may be, its real cllaracter is determined from without, by the interplay of economic forces. l'hese actual forms are none the less important for our purpose, and are the real subject matter of this chapter. While there exists a conflict betw~en social classes, whether in industry or elsewhere, the State machinery will be \tvarped to express the results of that confli ct ; but, given a community in which 110 such class-struggle exists, what would be the character of the State? What, in fact, would be the character and form of the Socialist State? The State in its evolution has assun1ed many forn1s as well as expressed many social powers. The feudal State was territorial in its basis, and, in so far as it was representative, represented territorial landowners. ,,'ith the decay of feudalism, the territorial basis of the State was weakened, though it survives faintly to our own tiIne in some rural constituencies, which continue faithfully to send the local lando\vner to Parliament. Largely, ho,vever, the old territorial State passed away before modern times, and was replaced by an oligarchy of wealth divorced from local

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service. The rotten borough, of course, was the supreme expression of this delocalised oligarchy. The beginnings of democracy in the State are also the beginnings of a new territorialism. The House of Lords, once the most purely territorial of assemblies, has almost \vholly lost that character, and is no\v a mere survival. The House of Commons, on the other hand, is still territorial in its basis, in that its men1bers are elected by, and sit for, geographical constituencies. It is true that under present conditions this geographical character is more apparent than real: the member elected for a particular constituency is often merely a t carpet-bagger,' the nominee of one of the parties, supported in his candidature out of national party funds, and wholly unconnected with the constituency which elects him. Even Labour and Socialist representation is by no means innocent of the t carpet-bag' ; for the big national Trade Union may send its parliamentary nominee to a constituency much as the organisers of the capitalist parties would send theirs. Nevertheless, it may safely be affirmed, as a broad generalisation, that the State, in so far as it is democratic, is also territorial.- i4 The Collectivist clearly recognises this fact when he puts for\vard his demand for nationalisation as a demand that industry shall be controlled by the consumer. For t consumer' has, in the main, a geographical n1eaning. The interest which binds men together as consumers is a local interest, whether it be the comn10n interest that finds expression in the Co-operative Store or in Municipal Trading, or the wider common interest that is found in the Cooperative Wholesale Society or in national ownership and control of industry. If, then, we would discover the true nature of the

NATURE OF THE STATE State and its relation to the individual and to other forms of association in a democratic Society, \ve mllst treat it as a geographical otganisation, in which men are represented on a basis of neighbourhood or inhabi.. tancy. In the lesser organs of State power, i.e. in I..ocal Government, this geographical basis is clearly realised; but it is not so often seen that the principle of organisation is essentially the same in a democratic national Parliament as in a municipality. As a territorial or geographical associatioIl, the State is clearly luarked out as the instrument for the execution of those purposes \vhich men have in common by reason of 'neighbourhood.' It is easiest to make plain the meaning of this [Jrinciple by taking first the case of a mllnicipal body. That body represents all the citizens as enjoyers in common of the land, housing, amenities and social character of the city. The municipal council is therefore, or would be if it were democratic, the proper bod)T to deal \vith those public matters which, broadly speaking, affect all the citizens equally and in the same wa~y, that is, affect them as citizens. It has not the same pri11za /dcie qualification for dealing \vith those matter3 which affect the citizens in different ways, according as they happen to be bakers or tramwaymen, Protestants or Catholics. The nlunicipal council repres2nts the individuals who inhabit the city as ' users' or enjoyers ' in COlnmOll, and is qllalified to legislate on matters of ' use' and' enjoyment' ; but if we would represent individuals as bakers or tramwaymen, Protestants or Catholics, we must seek other forms .of organisation in which these things are made the basis of representation. The case is the same with the national State. Parliament does, in so far as it is democratic, represent I

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men as 'users' or 'enjoyers' in common, this time on a national instead of a local basis. It is therefore qualified to deal \vith matters of national 'use' or , enjoyment'; but it is not equally qualified in those matters \vhich affect nlen differently according as they are miners or rail,vaymen, Catholics or Protestants. The theory of State Sovereignty falls to the ground, if this view of the fundamental nature of the State is correct. State Sovereignty, if the phrase has any meaning at all, implies, not indeed that the State ought to interfere in every sphere of human action, but that the State has ultimately a right to do so. It regards the State as the representative of the community in the fullest sense, and as the superior both of the individual' subject' and of every other fornl of association. It regards the State as the full and complete representative of the individual, whereas, if the view just put forward is correct, the State only represents the individual in his particular aspect of 'neighbour,' , user' and 'enjoyer.' The advocates of State Sovereignty, if they do not regard the State as being the community, do at least regard it as ' sustaining the person of the community,' whereas our whole view is that the person of the comnlunity cannot truly be sustained by any single form of organisation. This difference of view appears most distinctly when \ve survey the differing views taken by various schools of thought concerning the nature of associations other than the State, and their relation to the State. A controversy, mediaeval in its origin, but revived in modern times, has centred round this question, and has derived topical interest in our own day and from our special point of view, because it has arisen in an acute form in connection ,vith the legal position

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of Trade Unionism. The Osborne decision, vvhich rendered illegal the use of Trade Union funds for political purposes, was based upon a totally \vrong conception of the nature of Trade Unionism. Special legislation accordingly had to be passed to restore to the Unions even a modified freedom in this respect. The real principle at issue "vas greatly more in1portant than the important special point involved. The judges, in giving their decision, were really affirming their view that Trade Union rights are purely the creation of statute law and that Trade Unions themselves are artificial bodies created by statute to perform certain functions. Some opponents of the Osborne decision, on the other hand, expressed the view that a Trade Union is not a creature of statute law, but a natural form of human association, and therefore capable of growth and the assumption of new purposes. In short, there was really, on the one side, the view that all the rights and powers of other forms of association are derived from the State, and, on the other side, the view that these rights and powers belong to suel1 associations by virtue of their nature and the purposes for which they exist. IJet us now try to apply the vie\v which \ve have taken of the State's real nature to this particular case. Trade Unions are associations based on the ( vocational' principle. They seek to group together in one association all those persons \vho are co-operating in making a particular kind of thing or rendering a particular kind of service. In the common phrase, they are associations of ' producers,' using ( production' in the widest sense. The State, on the other hand, we have decided to regard as an association of 'users' or , ellj oyers,' of 'consumers,' in the common phrase.

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If this vie\v is right, \ve cannot regard Trade Unions as deriving their rights, including the right to exist, from the State. Associations of producers and consumers alike may be said, in a sense, to derive these rights from the comlTIunity; but \ve cannot conceive of an association of producers deriving its right to exist from an associa tion of ' users.' Our view, then, of the nature and rights of vocational and other forms of association is profoundly modified by the view we have taken of the nature of the State. \Ve no\v see such associations as natural expressions and instnlments of the purposes which certain groups of individuals have in common, just as we see the State, both in national and in local government, as the natural expression and instrument of other purposes which the same individuals have in common when they are grouped in another way. Similarly, our whole view of the relation of the State to other forms of association is profoundly modified, and we come to see the State, not as the 'divine' and universally sovereign representative of the c0111munity, but as one among a number of forms of association in which men are grouped according to ~he purposes which they have in common. Men produce in common, and all sorts of association, from the mediaeval guild to the modern trust and the modern Trade Union, spring from their need to co-operate in production: they use and enjoy in common, and out of their need for common action and protection in their use and enjoyment spring the long series of States, the various phases of co-operation, the increasing developments of local government. They hold viev.'s in COlTImOn, and out of their common opinions spring propagandist and doctrinaire associations of every sort: they believe in C.S.G.

F

NATURE OF THE STATE common, and Ollt of their need for fellowship and worship spring churches, connections and covenants. In all this diversity of human association, the State can claim an important place, but not a solitary grandeur. States exist for the execution of that very important class of collective actions which affect all the n1embers of the communities in \vhich they exist equally and in the same way. For other classes of action, in respect of which nlen fall into different groups, other forms of asc;ociation are needed, and these forms of association are no less sovereign in their sphere than the State in its sphere. There is no llniversal Sovereign in the community, becallse the individuals \vho compose that community cannot be fully represented by any form of association. For different purposes, they fall into different groups, and only in the action and inter-action of these groups does Sovereignty exist. Even so, it is an incomplete Sovereignty; for all the groups, which together make up Society, are imperfectly representative of that General Will which resides in the community alone. This may seem to be a highly generalised view of social organisation, and one which will not bear application to concrete problems. Of that, the reader will be able to judge better at the .end of this book; for the following chapters are, in the main, an attempt to apply it. It is admitted, at the outset, that it does not fully apply, and cannot be fully applied, to Society as it exists to-day, because at every turn we are met to-day by the conflict between economic classes for the control of the machinery of social organisation. But, in framing any far-reaching policy for the future, we must have in mind, not only the Society of to-day, bllt the logical development of that Society along

NATURE OF THE STATE delTIocratic lines, and, in particular, \vhen we discuss the nature of any piece of social nlachinery, we nlust endeavour to see it both as it is, \varped by class conflict, and as it \vould be if there were no class conflict in the conlmunity. In this chapter, while \ve have not been able to eliminate wholly consideration of the State as it is, we have been considering mainly the State as it would be in a democratic community immune from class conflict. vVe have seen that, in such a Society, the theory of State Sovereignty \vould be no more defensible than it is to-day, because the purification of the State \vould ser\"e only to emphasise its real character as a geographical or territorial association of neighbours, users or enjoyers, and \vould make clear the lilnitations of its functions by opening the way for the full and free growth of other forms of association.

II Having sketched in general my view of the true function of the State in a democratic community, let me endeavour to state Iny view 1110re concretely, \vith reference to the particular theory of industrial organisation \vhich I have in Inind. To every actual social system corresponds a theory of social relations. Rousseau's conception of the General Will greatly affected Revolutionary France; the ideas of Bentham and Mill did much to 1110uld the social legislation of industrial Great Britain. Every people, in fact, gets the social philosophy it deserves, and every social system in part throws up, and is in part thrown up by, an equivalent social theory. Guildsmen, therefore, cannot afford to neglect social theories, which are the stuff of which revolutions are made.

NATURE OF THE STATE State Sovereignty is the theoretical equivalent of Collectivist practice: Guild Socialism, in its turn, must face anew the problem of ultimate social obligation, and must ,vork out for itself a new theory. I do not deny, as indeed, no one can deny if he desires to call himself either National Guildsman or Guild Socialist, that industry is not everything: and that industrial democrac)T cannot be truly national unless it is responsible in some sense to the community as a whole. What I do most empllatically deny is that this ultimate court of appeal is the State, in any sense in which the term is ordinarily understood. Of course, if by , State' is meant merely any ultimate body, there is no more to be said: in this sense everyone who is not an Anarchist is an advocate of State Sovereignty. But if the sovereignty of the State means the sovereignty of Parliament with its subordinate local bodies, then I maintain that it is utterly inconsistent with the principle on which Guild Socialism rests. Parliament, Municipal and County Councils, School Boards, Boards of Guardians and the like, in fact, the ,vhole complex machine which we call the State, are territorial associations, elected on a territorial basis by all the persons recognised as citizens who live within a definite locality. One and all, they are based upon the fact of living together, even if some relics of a different system survive, or if the territorial basis has become purely nominal, as in the House of Lords. The bond between persons who live together is, in its material aspect, the fact that they are users or consun1ers in common of commodities and services. Parks, roads, houses, water and many other' public tltilities ' are consllmed in common by all the dwellers within stIch and such an area. The sovereignty of the territorial

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association therefore Ineans the sovereignty of the consumer-a fact which is continually recognised and acclaimed by Collectivists. The Guild idea, as applied to industry, is in essence a denial of the industrial sovereignty of the organised consumers, that is, of territorial associations. It repudiates the industrial sovereignty of Parliament. But this does not mean either that it rejects the idea of communal sovereignty, or that it finds its sovereign within the Guilds themselves. Anarchism set out to destroy State Sovereignty without replacing it: Syndicalism denied the sovereignty of the State only to enthrone the General Confederation of Labour in its stead. Guild Socialists, recognising that a purely industrial sovereign is no advance on a purely political sovereign, must create a political theory to fit the Guild idea. Collectivism, we have seen, is the practical equivalent of State Sovereignty. It is not generally realised how completely Syndicalism is an inversion of Collectivism. The one asserts the absolute sovereignty of the con-

sumers, of the territorial association: the other the sovereignty, no less absolute, of the producers, of the professional associations. Criticised for leaving out the producers, Collectivists will ask what it matters, since producers and consumers are, or would be in a Socialist Society, the same people; cri ticised for neglecting the consumers, Syndicalists make precisely the same reply. Guild Socialists recognise that neither the territorial nor the professional grouping is by itself enough; that certain common requirements are best fulfilled by the former and certain others by the latter; in short, that each grouping has its function and that neither is

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completely and universally sovereign. They see that the Guild, the grouping of all workers engaged in the same industry, is the body best fitted to e..{ecute certain purposes of a national character, and accordingly they assert that the National Guild is a necessary articulation of the national consciousness. Similarly, they recognise that all the dwellers in a single area, the consumers in common of certain services and commodities, can best further their own and the nation's interest by joining together and forming a body to see to the supply of these services. They hold that the economic relationship between man and man only finds full expression when producers and consumers alike are organised-when the producer and the consumer negotiate on equal terms. At the first stage, then, Guild Socialists postulate a double organisation-the National Industrial Guild on the side of the producers, and the Municipal Council on the side of the consumers. And clearly above the various municipal bodies there is, on the consumers' side, Parliament, the supreme territorial association. It is at this point that Guild Socialists may easily be tempted to go wrong. While everyone visualises Parliament as the supreme territorial body, are we all equally clear on the industrial side? Too many people seem to think all along of the Guilds as a multiplicity--of each separate Guild as receiving its charter from Parliament, and dealing thereafter directly and finally with Parliament. That is certainly not my conception of the Guild system. Just as I visualise the smaller territorial associations unified in the great territorial association of Parliament, so I conceive that the various Guilds will be unified in a central Guild Congress, which will be the supreme industrial body,

NATURE OF THE STATE iitanding to the people as producers in the same relation as Parliament will stand to the people as consumers. To deny State Sovereignty in industry is not to reduce industry to a mere multiplicity of warring Guilds; it is to confront Parliament with an industrial body which has an equal claim to be representative of the nation as a whole. Neither Parliament nor the Guild Congress can claim to be ultimately sovereign: the one is the supreme territorial association, the other the supreme professional association. In the one, because it is primarily concerned with consumption, government is in the hands of the consumers; in the other, where the main business is that of production, the producers hold sway. But, as a recent critic of Guild Socialism has pointed out, this separation of functions, which is fundamental to the Guild system, does not solve the problem. The nation is in all its aspects so interdependent, production and consumption are so inextricably intertwined, that no mere abstract separation of functions can form a basis for a theory of the modern community. The problem cannot, I admit, be left where it stands: if the old. Sovereign of Collectivism and the rival Sovereign of Syndicalism are alike dethroned, it remains for Guild Socialists to affirm a new and positive theory of sovereignty. I can deal with the matter here only very briefly, and solely in its industrial aspect. Where a single Guild has a quarrel with Parliament, as I conceive it may well have, surely the final decision of such a quarrel ought to rest with a body representative of all the organised consumers and all the organised producers. The ultimate sovereignty in matters industrial would seem properly to belong to some joint body representa-

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tive equally of Parliament and of the Guild Congress. Otherwise, the scales mllst be \veight~_d unfairly in favour of eitller consumers or producers. But if, on such questions, there is an appeal from Parliament and from the Guild Congress to a body more representative than either of them, tIle theories of State Sovereignty and Guild Congress Sovereignty must clearly be abandoned, and \ve must look for our ultimate sanction to some body on which not merely all the citizens, but all the citizens in their various social activities, are represented. Functional associations must be recognised as necessary expressions of the national life, and the State must be recognised as merely a functional association-' elder brother,' primus inter pares.' The new social philosophy which this changed conception of sovereignty implies has not yet been worked out; but if Guild Socialists would avoid tripping continually over their own and other writers' terminology they would do well to lose no time in discovering and formulating clearly a theory conconsistent with the Guild idea and \vith the social structure they set Ollt to create. I

III Our conceptions of government and social organisation depend inevitably upon our outlook on life. The power of a group advocating any particular type of social organisation depends llpon the extent to which its members have, fundamentally, the same outlook on life. The system of National Guilds appeals to me first of all as a balance of powers. Guildsmen have always recognised, and drawn a distinction between, two forms

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of social po\ver, economic and political. Economic po\ver, they hold, precedes political po\\yer. The social class \vhich at any time holds the economic power will hold the political po\ver also, and will be dispossessed in the political sphere only by a new class which is able to overthro\v it in the economic sphere. The first question which National Guildsmen have to face, in adopting this position, and, at the same time, holding to their double theory of social organisation, is whether the very nature of the distinction which t~ey draw between economic and political power does not result in obliterating the difference between them. This is the fundamental character of the criticism urged against them by Syndicalists and Marxian Industrial You agree with us," ~uch critics \vill Unionists. say, that the State is only a pale reflexion of the economic structure of Society. Why, then, seek to preserve this mere mechanical device of capitalism when the conditions which created it have ceased to exist? " It is not enough for Guildsmen, or, at least, it does not seem to me to be enough, to reply that reflexions may have their uses, and. that, if capitalistic industrialism has turned the State to its own ends, democratic industrialism, in the day of its triumph, may vvith good effect do the same. This is an ansvver, and perhaps a sufficient ans,ver; but it is not, I an1 convinced, the right ans\ver for Guildsmen to make. For I am not convinced that the State must be, under all social conditions, merely a pale reflexion of the economic structure of Society-at least} in any sense which would preclude equality of po\ver bet\veen thenl on many Issues. In countries given over to capitalist industrialism, Cl

It

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the State is controlled by the industrial capitalists. That is a true description of things as thej1 are, and it is clear that things can be changed only by means of a re-distribution of economic power. But, \vhen this re-distribution has taken place and National Guilds are in being, will it st.ill be true that economic power precedes political power? In our interpretation of history, the evolution of Society is seen as a long series of struggles between social classes for the possession of economic power. We envisage National Guilds, as l\Iarx envisaged his conception of Socialism, as the culmination and completion of this long process. We do not doubt that development will continue after National (;uilds have been brought into being; but development \vill assume new forms. The class-struggle \vill be over, and the social class' will be a thing of the past. Under these new conditions, will the old relation between economic and political power remain unchanged? Is it not rather true that the existing relation arises out of, and depends upon, the class-struggle, so that with the ceasing of the class-struggle it, too, will cease to exist? The contrast bet\\:reen economic and political power has only a strained application to those primitive conditions which preceded an acute division of classes: the strain will be altogether too great if we try to apply it to conditions in which there are no distinctions of class. What, then, will be the relation between economic and political power under the Guilds? A relation, I think, of equality-··equality upon which the poise and vitality of Guild Society fundamentally depend. For, to me at least, the balance of power is the underlying principle of the Guilds. and any departure from it I

NATURE OF THE STATE would be destructive of their essential character. Let me explain more precisely what I mean. We have disputed, time and again, about the Sovereignty of the State, and its application to Guild philosophy; but \ve have often conceived the problem rather in a negative than in a positive way. Sometimes we have started ,vith the Guilds as a positive system, and have tried to see in what respects we desire to limit their authority by State intervention, or by the assigning of certain functions to the State rather than to the (~uilds. At other times, we have started from the side of the State, and considered in what respects we desire to see its power limited or its functions curtailed. What we have seldom done is to consider at the same time the positive character of both the State and the Guilds, so as to focus at cnce the whole problem of the relation between them. This, however, is what we must try to do when we attempt, not to define the limits of State or Guild action, but to lay bare the basic principle of National Guilds.

The fundanlental reason for the preservation,

in a democratic Society, of both the industrial and the political forms of social organisation is, it seems to me, that only by dividing the vast power now \\'"ielded by industrial cr pitalism can the individual hope to be free. The objection is not simply to the concentration of so vast a power in the present hands, but to its concentration anywhere at all. If the individual is not to be a mere pigmy in the hands of a colossal social organism, there must be such a division of social powers as ,viII preserve individual freedom by balancing one social organisnl so nicely against another that the individual may still count. If the individual is not to be merely all insignificant part of a Society in which his personality

NATURE OF THE STATE is absorbed, Society must be divided in such a \vay as to make the individual the link bet,veen its autonomous but interdependent parts. This is what the system of National Guilds achieves. It divides social authority equally between the economic and the political organisation, aI~d, in so doing, it preserves the integrity of the individual, who has rights and duties in both the economic and the political spheres. I contend, then, tllat the balance of economic and political po\ver is the fundamental principle of National Guilds, and that, if that goes, the security for individual freedom goes with it. I kno\v there are some who contend that the preservation of such a balance is impossihle, and son1e who contend that no such balance is desirable. I want, for the mon1ent, to come back to those who contend that it could not be preser\ edt They are of two kinds- those \\lho hold that econon1ic power \vill still precede political po\ver, and that the Gllilds will l1ecessarily out,veigh the State, a.nd those who hold that, in a derl10cratic Society, the balance ,;yill shift, and, the conflict of classes being over, the State \vill ollt\veigh the Guilds. To the latter I would reply that, even apart frOin class conflict, the economic, or, rather, industrial, bond \vill remain more intense than the political, and that its greater intensity ,vill be enough to balance the ,vider ' spread' or extension of the political bond. To the former a rather longer reply must be given. Every individual under the Guilds \viII not be a member of a Guild; but every individual . we n1ay expect, will be a member of son1e form of association based on social service rendered-a productive association in the widest sense of the word. Similarly, it goes without saying that every individual

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will be a member of the State, and probably of other associations of ' users,' , consumers,' or 'enjoyers.' It is certainly true in any fornl of Society that the' enjoy·· ment ' of things produced depends upon production; but it does not follow that the power of the productive association precedes or determines that of the association of 'enjoyers.' It does follow when one class owns and controls the means of production that it must, to all intents and purposes, o,vn and control everything else; but it does not follo,v that, when producer and , enjoyer ' are the same, the productive association will dominate the association of 'enjoyers.' The greater intensity of the producti ve association is an intensity of each Guild, or producing group, within itself: it is not a single undifferentiated intensity of the whole body of producers, and in becoming one and uniform in the Guild C.ongress it must also become less intense. The unity of the' enjoyers ' association, on the other l1and, is practically indivisible: not so intense in its nature, it is of about the same intensity at the point of contact. In other ,vords, the greater solidarity and uniformity of

the State about compensates for the closer attachment which the individual may be expected to feel to his Guild. The Guilds ,vill be many, the State one; and State unity will counterbalance Guild corporatism. I do not deny that there is a danger in both directions, or that, when National Guilds are in being, the balance may be upset, and the essential character of the system destroyed. That will, indeed, be the ever-present peril against which it will be the function of guildsmanship to guard. All I am concerned to deny is that there is anything in the nature of the Guild system which makes the balance unattainable or incapable of preservation. Far from thatl National Guilds seem to me to off~r the

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only reasonable prospect of a balance of po\vcrs, and that is the fundamental reason '''hy, in the name of individual freedom, I call myself National Guildsman.

IV The governing principle of the Anlerical1 constitlltion is that of the separation of the three powers-legislative, executive and judicial. Nor is this onI)1 a theoretical principle; for, in the main, the separation holds good in practice. The principle of our own government, on the other hand, is the combination of these po,vers. In theory, and practice, the judicial po\ver, owing to tIle absence of a fornlal constitution, is subordinated to the legislature. In theory the executive is subordinate to the legislature, though it would be truer to say that in practice the legislature is increasingly subordinate to the executive. vVhether \\te look to principle or to practice, it is at any rate true that \vith us legislature and executive are not two powers fundamentally distinct, but one power internally differentiated. The effect of this upon onr ,vorking political theory is obvious. Legislature and executive may conduct internal struggles for mastery one against tIle other; but in relation to the mass of the people they present a Ullited front. Representati ve government is exalted by them into a principle \vhich practically carries with it the exclusion of the represented from an effective share in government. The separation of powers, as theorists have often pointed out, ensures a recognition of the principle that sovereignty resides outside both legislature and executive: their combination readily results in the acceptance of the representative institution as sovereign.

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When \ve speak of State Sovereignty, \ve may have at the back of our minds the idea that this sovereignty belongs to the whole people; but \ve are thinki1\g al\vays of its exercise by the State as a complex of institutions-in a 'den10cratic' country, of representati\"e institutions. If the national institutions are in effect combined in a single machine, \ve think of sovereignty as exercised by this machine, even if it belongs of right not to the nlachine, but to the people behind it. State Sovereignty, in the sense of governnlental Sovereignty, therefore finds its only natural and complete expression in a systelll under \vhich the po\vers of government are united in the hands of a single authority. The over\veening claim of the State machine to the absolute allegiance of the citizen, called in this connection the subject,' is only possible under a system in which governlnental authority is unified under a Prince,' \vhether that prince be a despot or a represen ta ti ve insti tu tion. This has led some opponents of State Sovereignty to I

I

look favourably upon the division of powers between an

independent legislature, executive and judiciary. But, in the case of the first two, \vhich under modern conditions constitute the real problenl, it is at once apparent that no such division is possible or desirable. The struggle for parliamentary government, \vhich n1ust be recognised as at least a phase in the European form of the struggle for political freedom, has centred round the demand of the legislature for control of the executive. If it has not secured that, it has at least welded the two into a single power, preserving their internal distinctness, but rendering them incapable of disintegration. N or is this to be regretted. A democratic country

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must be governed mainly by legislation, and those bodies in it which are legislative in character must preponderate. This is not true of a federal government such as that of the United States, though it is slowly becoming more true as An1erica is drawn more into world politics; but it is true to a great extent of the States which constitute the Union. It is indeed only the federal character of the United States that makes the separation of powers workable. A Society like our own must bind closely together the legislature and the executive, because with the laws in constant change legislation and administration lose their distinct character. There can for us be no solution of the problem of State Sovereignty by a division of legislative and executive po\ver. How, then, are we to realise, for such a Society, the benefits of the separation of powers? Ho\v are we to re-affirm popular sovereignty, and, in so doing, reestablish the individual in his fundamental rights? 1'he main business of government for us is the making and modification of laws which serve as the basis of administration. If this seems a comlnonplace, it must be remembered that it would not seem so in all places or in all tinles. We live under a reign of national law, and this seems to involve the unification of the making and administering of law under a single ultimate authority. We must, then, seek our division of pO""Fers by the light of a new principle. We must recognise that the control of legislation and administration cannot be divorced, and, if we are to find a cleavage at all, we must make a new cut. In fact, we must separate the po"vers of government not horizontally, but vertically. Every important act of government, or at least every

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internal act, passes through the successive stages of legislation and administration. The old doctrine of the separation of po\vers is based on the principle of a division by stages: the legislative stage is to be divorced from the stage of administration. The new doctrine must be that of division by function: the type, purpose and subject-matter of the problem, and not the stage at which it has arrived, must determine \tvhat authority is to deal with it. This involves a ne\v conception of the nature and relationship of legislation and administration. Many writers have remarked the tendency of recent political changes to devolve administrative fUIlctions upon bodies standing outside the State machine, or only loosely connected \vith it. But no such tendency has shown itself in the strict sphere of legislation, and there the State has preserved its sole competence. It has devolved administrative power; but the devolution has been accomplished by the grant of the State, and has been subject to recall by a sovereign Parliament. It has been a method of convenience, and not a recognition of a new principle. Nevertheless, it is a beginning, which the close connection between legislation and administration under modern conditions renders doubly valuable. It is not a recognition of a new principle, but it does open the door to such recognition. It is, in fact, the first step in a division according to function not only of administrative, but also of legislative, competence. For nothing less than this the new theorists of the division of powers must stand. The Guildsman must claim for the Guilds, not only administrative, but also legislative functions. Their law must be as sovereign C.S.G,

G

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NATURE OF THE STATE

in the industrial sphere, exercised through the Guild Congress, as the law of the State mtlst be sovereign in the political sphere. And, while laws are enforced at all, it must be no less enforceable. Where now the State passes a Factory Act, or a Coal Mines Regulation Act, the Guild Congress of the future will pass such Acts, and its power of enforcing them will be the same as that of the State. This leads at once to a new conception of the judiciary, which in this country now hovers between independence and dependence on the State. Attention is often drawn, in connection with the separation of powers, to the position of the Supreme Court of the United States; but the independence of the Supreme Court is based on the existence of a written constitution, which the legislature has no power to alter without an appeal to the people. Apart from that, the American Federal Courts merely apply and administer federal law, as the British courts apply and administer British law. In principle, they are subordinate to the legislature. What, then, will be the position of the judiciary under the Guilds? It will have two sets of laws to administer-State law and Guild law, each valid within its sphere, and co-ordinated, where need arises, by the Joint Congress of the Guilds and the State. It is not desirable to divide the judiciary, as it is desirable to divide legislation and administration, because the judiciary is concerned, not with policy, but with interpretation of policy already decided. Guild theory involves, then, the division of the 'legislative-executive power' according to function between the State and the Guilds; but it preserves the integrity of the judiciary, making it an appendage

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neither of the State nor of the Guilds, but of the two combined. The arguments for a balance of powers bet\veen the State and the Guilds were set out in a previous section of this chapter. In this section I have attempted to show how this balance would work out constitutionally. It involves a revolution in OUf theory of government; but it also provides the only means of realising in practice what has been clear in theory to many political students-a separation of powers which will be effective against the absolutist claim of modern legislative assemblies. A balance of power is essential if individual freedom is preserved; but no balance is possible unless it follows the natural division of powers in the Society of to-day. Politics and economics afford the only possible line of division, and between them the power of legislation and administration can only be divided on the basis of function.

CHAPTER IV TI-IE CASE FOR NATIONAL GUILDS

No movenlent can be dangerous unless it is a movement of ideas. Often as those whose ideals are high have failed beCatlSe they have not kept their po\vder dry, it is certain that no amount of dry powder ,viII make a revolution succeed, without ideals. Constructive idealisnl is not only the driving force of every great uprising; it is also the bul\vark against reaction. If, then, Trade Unionism is to be the revolutionary po\ver of the future, it will become so only by virtue of the idealism that inspires it. \\Thile it remains merely 11laterialistic, it ,viII not stand a· dog's chance of changing the capitalist system into something better. Socialists, therefore, when they put their trust in organised I . . abour, are expressing their belief that Trade Unionism means sOlnething more than the desire of its members for greater material comfort. The old-fashioned attitude towards Trade Unionism is summed up in the text-book definition: "A Trade Union is a continuous association of ,vage-earners for the purpose of maintaining or improving the conditions of their employment." At first sight, tbis seems a fair enough description; for certainly in the past the Unions have been mainly concerned \"ith this aspect of ' collective bargaining.' The definition is indeed an

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adequate account of Trade Unionism as it was conceived by the ( Old Unionists' themselves. Historically, the prinlary function of the Unions has been to maintain the price of the labour-commodity within the capitalist system. When Socialism first became strong in England, the Unions were still reformist to the last degree. It is not too much to say that, crossed in early youth in Its love of revolution, Labour had taken the vow of celibacy, and refused to nlate wit}l any idealistic 1110vemente The revolutionary Unionism of the tiIne of Robert Owen moved prematurely out to battle, and suffered ignominious defeat: to those who survived its downfall, the only possible course seen1ed to be that of saving the relics of the Trade Union arnlY by turning it into a sort of civil guard-by abandoning every form of militancy and confining its activities, '~lherever possible, to peaceful negotiation \vith the employers. All thougllt of ending capitalism ,vas banished from the Trade Union ,vorld; and every suggestion of political bias was repudiated. The Unions accepted a frankly reformist position: sliding-scale agreements and arbitration boards came to represent the height of their ambition. It was not unnatural, therefore, that the early Socialists, including most of the prominent members of the old Social Democratic Federation, regarded the Unions as too hopelessly reactionary to be of any assistance in achieving the Socialist Commonwealth. The result of this natural mistake was, however, none the less disastrous. English Socialism, as it grew up, remained a doctrine almost wholly political in character: on the industrial side, its last word concerning the future organisation of production was nationalisation.

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THE CASE FOR

Meanwhile, largely under the influence of the spreading Socialist ideas, the Unions themselves began to change. The Dock Strike of 1889 was, of course, the first great visible sign of the new spirit; for it meant nothing less than the dawn of a ne\v class-consciousness. Trade Unionism could thereafter no longer mean only the corporate egoism of the skilled tradesmen; the unskilled workers came to take their place along with their fellows in the battle for industrial freedom. This change of spirit is even now far from complete; but it was certain from this point that the substitution of class-consciousness for trade-consciousness in the Trade Union world was only a matter of time. The growth of the new spirit marks the lost opportunity of Socialism. Then was the time for political Socialism to make itself complete by including the idea of self-government in industry, by recognising the Trade Unions as the future masters of production. Their failure to do this meant a set-back of a quarter of a century to the Socialist cause. The events which culminated in the Dock Strike were not, indeed, without their effect upon Socialism, since they led directly to the foundation of the Independent Labour Party. But the I.L.P., instead of declaring for the true industrial democracy, chose a purely political programme gleaned half from the Fabians and half from the S.D.F. Though they owed their being to an industrial revolt, Reir Hardie and his friends still utterly failed to understand its meaning. They had 110t grasped the true function of Trade Unionism, and they remained sceptical of its ultimate value. When, however, a few more years had elapsed, and there still seemed no signs of the conversion of the bulk of the working-classes, the Socialists at last realised

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the futility of ignoring the Unions. Their next step was accordingly the creation of the Labour Party, a federation of Trade Unions and Socialist Societies. But here their failure ~'as no less remarkable. Driven by the logic of facts to see the necessity of Trade Union support, they wholly failed to see more than this, or to understand how their appeal ought to be made. Instead of enlarging their theory on the industrial side, and recognising the Unions as entitled to the control of industry, they endeavoured to collar Trade Unionism in support of their own political programme. By this move, which reflects equal discredit on the commonsense of both parties, they gained a great accession of immediate strength; but at the same time they lost a great opportunity, and sowed the seed of their own weakness in the future. Instead of trying to inspire the Unions with an industrial idealism, they attempted to make them purely political idealists and to pour the political wine into the industrial bottle. The result was inevitable; the Trade Unions did not become idealistic, and the composite political body in which the Socialists chose to merge their identity was not only utterly without ideals, but also very soon emasculated the idealism of its Socialist wing. The final result we know: it is a Labour Party of which Capitalism has long lost all fear. Human nature, however, came to the rescue. While the recognised leaders of Trade Unionism in too many cases frittered away their strength in politics-which, necessary as it may be, is not their job-the rank and file ,vere being slowly fired by the new idealism which the Socialists had failed to understand. Half-unconsciously, the revolt against despotism in the \vorkshop began to take form, and the workers began to realise

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THE CASE FOR

that there could be no end to their subordination until they themselves were masters of their own industries. The conduct of the nationalised services, too, made them feel that the management of industry by State departments, thougl1, generally extended, it might result in a fairer distribution of income, could never b)7 itself ans,ver their demand for industrial freedom. Syndicalism, or at any rate doctrines tinged ,vith Syndicalism, began to take root, and} when the industrial unrest took form, it was found to be not merely a demand for higher wages, but an insurgence against tyranny and an aspiration to\vards industrial se]fgovernment. This new spirit gre\v up within the Trade Unions, and to a great extent outside Socialism, simply because Socialists had no imagination. But, growing up in this way, it \vas inevitably one-sided and incomplete. It was a purely industrial doctrine, when the need was for a doctrine at once industrial and political. It is the business of Socialists to-day to achieve what should have been achieved at the time of the Dock Strike twenty-five years ago, and to make a synthesis of the twin idealisms of Socialism and Trade Unionism. The working out of the new Socialism should be the main bllsiness of all those who know the value of ideals, and desire to bring about a social revolt imbued with constructi ve idealism. In the Society of to-day the State is a coercive power, existing for the protection of private property, and merely reflecting, in its subservience to Capitalism, the econolnic class-structure of the modern world. The Trade Unions are to-day merely associations of wageearners, combining in face of exploitation to make the conditions of their servitude less burdensome. Out of

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these two-out of the Capitalist State and the Trade Union of wage-earners-what vision of the future Society can we Socialists conjure up ? Realising rightly that the structure of our industrial Society finds its natural and inevitable expression in the class-struggle, and preoccupied ceaselessly with the demands of our everyday warfare with Capitalism, we are too apt, despite our will to regenerate Society, to regard the present characteristics of the State and the Unions as fixed and unalterable. Some regard the State as essentialIy the expression of Capitalism, and hold that with the rise of the worker to power, the State and all its functions will disappear automatically. This is Anarchism, to which one kind of Syndicalism approximates. Others, again, regard the Trade Union as essentially a bargaining body which, with the passing of Capitalism, will have fulfilled its purpose, and will at once cease to exist or become of very minor importance. This is the attitude of pure State Socialismof collectivist theory, as it has been commonly mISunderstood, both in Great Britain and abroad. Both these views rest on false assumptions. One side presupposes that the State must be ahvays much as it is to-day; the other assumes that its narrow conception of the function of the Trade Union under Capitalism includes all the functions the Unions ever could, or ought to, assume. Both views are one-sided in that they accept the possibility of transforming one of the two bodies in question, and deny the possibility of transforming the other. But nothing is more certain than that both State and Trade Union, if they are to form the foundation of a worthy Society, must be radically altered and penetrated by a new spirit.

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THE CASE FOR

A stable community, recognising the rights and personality of all sections of consumers and producers alike, can only be secured if both the State and the Trade Unions take on new functions, and are invested with control in their respective spheres. Collectivism which is not supplemented by strong Trade Unions will be merely State bureaucracy on a colossal scale; Trade Unions not confronted by a strong and democratised State might well be no less tyrannous than a supreme State unchecked by any complementary association. The proper sphere of the industrial organisation is the control of prodtlction and of the producer's side of exchange: its function is industrial in the widest sense, and includes such 'matters as directly concern the producer(as a producer-in his work, the most important and serviceable part of his daily life. It has no claim to decide' political' questions: for its rigllt rests upon the fact that it stands for the producer, and that the producers ought to exercise direct cOlltrol over production. The proper sphere of the State in relation to industry is the expression of those common needs and desires \vhich belong to men as consumers or users of the products of industry. It has no claim to decide producers' questions or to exercise direct control over production; for its right rests upon the fact that it stands for the consumers, and that the consumers ought to control the division of the national product., or the division of income in the community. Industry, in the widest sense, is a matter of both production and use. The product has to be produced, and it has to be determined \vho shall have the right to consume it. On the one hand, the decision of the

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character and use of the product is clea.rly a matter primarily for the user: on the other, the conditions under which work is carried on so vitally and directly concern the various sections of organised producers that they cannot afford to let the control of those conditions remain in the hands of outsiders. The old Collectivist claimed everything for the democratic community, and maintained that the workers would find their grievances adequately ventilated and their interests thorougllly safeguarded by means of a reformed Parliament under democratic control. He looked forward to a future Society in which the State and the Municipalities would employ all the workers much as they now employ men in the post office, the Government dockyards, or on the tram\vays, with the difference that the goodwill of the whole body of consumers would secure for the worker decent wages, hours and conditions of labour. The new Syndicalist claims everything for the organised \vorkers; he would have them so organise as to secure the monopoly of their labour, and supplement this first principle of economic power by the provision of economic resource, and then he \vould have them, by direct action, oust the Capitalist from the control of industry, and enter themselves into complete possession of the means of production and distribution. There is in this more than a clash of policies; there is a clash of fundamental ideas. The Collectivist, immersed in the daily struggle of the worker for a living wage, has thought only of distribution. High wages under State control have been the sum of his ambition; he has dismissed, as artists, dreamers, or idealists, those who, like William Morris, have contended that no less fundamental is the question of

108

THE CASE FOR

production-the problem of giving to the workers responsibility and control, in short, freedom to express their personality in the work which is their way of serving the community. The problem of Socialist theory in the present is the reconciliation of these t\VO points of vie\v; for either, alone, is impotent to form the framework of a noble ideal. Political democracy must be con1pleted by democracy in the \vorkshop; industrial democracy must realise that, in denying the State, it is falling back into a tryanny of industrialism. If, instead of condemning Syndicalism unheard, the Socialist would endea,'onr to grasp this, its central idea, and harmonise it with his own ideal of political justice, Collectivism and S~yndicaJism would stand forth as, in essentials, not opposing forces, but indispensable and complementary ideas. A close analysis of the Sj~ndicalist demand points the way to the only real solution. That absolute ownership of the means of production by the U nious to which some S~yndicalists look forward is but a perversion and exaggeration of a just demand. The workers ought to control the normal cOndtlct of industry; but they ought not to regulate the price of commodities at will, to dictate to the consumer \vhat he shall consume, or, in short, to exploit the community as the individual profiteer exploits it to-da)T. What, then, is the solution? Surely it lies in a division of functions between the State as the representative of the organised consumers and the Trade Unions, or bodies arising out of them through industrial Unionism, as the representati\Tes of the organised producers. These bodies we call National Guilds, in order both to link them up ,vith the tradition of the I\iiddle Ages

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109

and to distinguish them from that tradition. We, \vho call ourselves National Guildsmen, look forward to a community in \vhich production \vill be organised through democratic associations of all the workers in each industry, linked up in a body representing all "vorkers in all industries. On the other hand, we look forward to a democratisation of the State and of local government, and to a sharing of industrial control between producers and consumers. The State should own the means of production: the Guild should control the ,york of production. In some such partnership as this, and neither in pure Collectivism nor in pure Syndicalism, lies the solution of the problem of industrial control. Naturally, such a suggestion needs far more elaborate working out than can be given here, and, in particular, much must be left for decision in the future as the practical problems arise. \Ve cannot hope to work out a full and definite scheme of partnership in advance; but we have everything to gain by realising, even in broad outline, what kind of Society we actually desire to create. We need at the same time to satisfy the producers' demand for responsibility and self-government, and to meet the consumers' just claim to an equitable division of the national income, and to a full provision of the goods and services vvhich he justly requires. Some sort of partnership, then, nlust come about; but there is a notable tendency nowadays for persons to adopt the phrase without intending to bring any effective partnership into being. The partnership, to be worth anything, must be a partnership of equals, not the revocable concession of a benignant al1d superior State, and, to make it real, the Guilds must

110

THE CASE FOR

be in a position to bargain on equal terms with the State. The conditions upon which the producers consent to serve, and the community to accept their service, must be determined by negotiation between the Guilds and the State. The Guild must preserve the right and the economic resource to withdraw its labour; the State must rely, to check unjust demands, on its equal voice in the decision of points of difference, and on the organised opinion of the community as a whole. As a Jast resort the preservation of equality between the two types of organisation involves the possibility of a deadlock; btlt it is almost impossible to imagine such a deadlock arising in an equalitarian Society. I have stated my ideal very baldly, because it has already been stated well and fully elsewhere, and I do not desire to go over again the ground which others have covered. I must, however, state briefly the fundamental moral case both against Socialism as it is usually conceived and in favour of the ideal for which I am contending. What, I want to ask, is the fundamental evil in our modern Society which we should set out to abolish? There are two possible answers to that question, and I am sure that very many ,veIl-meaning people would make the wrong one. They would answer POVERTY, when they ought to answer SLAVERY. Face to face every day with the shameful contrasts of riches and destitution, high dividends and low wages, and painfully conscious of the futility of trying to adjust the balance by means of charity, private or public, they would answer unhesitatingly that they stand for the ABOLITION OF POVERTY.

NATIONAL GUILDS

III

Well and good! On that issue every Socialist is with them. But their ans\ver to my question is none the less wrong. Poverty is the symptom: slavery the disease. The extremes of riches and destitution follow inevitably upon the extremes of license and bondage. The many are not enslaved because the)' are poor, they are poor because they are enslaved. Yet Socialists have all too often fixed their eyes upon the material misery of the poor without realising that it rests upon the spiritual degradation of the slave. I say they have not realised this, although they have never ceased to proclaim that there is a difference between social reform and Socialism, although they have always professed to stand for the overthrow of the capitalist system. For who among our evolutionary Socialists can explain wherein this difference consists, and who of Ollr revoilltionists llnderstands what is meant by the o\rerthrow of Capitalism? It is easy to understand how Socialists have come so to insist upon the fact of poverty. Not one of them, at least until he has eaten of the forbidden fruit of office in the political Garden of Eden, but is moved by an intense conviction that our civilisation is beyond measure degrading and immoral. His first object, then, is to make others see that he is right. What more natural than to exhibit, before the eyes of all men, the open sore of physical misery? Even the least imaginative can see the evils of poverty, and the majority are supposed to lack imagination. We, therefore, confront the world with the incontrovertible fact that the few are rich and the many poor. The idea that the fundamental aim of Socialism is the abolition of poverty begins in an argumentum ad hOt1'linem.

1I2

THE C·ASE FOR

I have not time to describe the effect of this attitude on the practice of Socialists in the political field. I can only say, in a few words, why I believe it to have been disastrous. Our preoccupation with poverty is the cause of our long \vanderings in the val1ey of the shadow of reforn1ism: it is the cause of that dragging of Labour into a Liberal alliance which has wrecked every chance of successful political action for a generation to come. There are too many to whom Socialism has con1e to mean a steeper graduation of the income-tax, the nationalisation of mines and rail\vays and the break-up of the poor law, together with a shadowy something behind all these to \vhich they can give neither name nor substance. The very avidity ""ith which we clung, like drowning Inen, to the somewhat blliky straw of the l\1inority Report was a clear indication of our bankruptcy in the realm of ideas. To many of ns, that very adroit and neceSSar)7 adjunct to the capitalist system seemed the crowning expression of the constructive Socialism of our day. Our generation was seeking for a sign; but there \vas no sign given it save the sign of the prophet Jonah. And Jonah, if my memory serves, was a minor prophet. The biblical Jonah once had the fortune to be swallowed by a \vhale. In our days, the tables ha,re been turned, and, instead of the Labour movement swallowing its Jonah, Jonah has swallowed the Labour Inovement. Inspired by the idea that poverty is the root evil, Socialists have tried to heal the ills of Society by an attempt to redistribute income. In this attempt, it will be admitted that they have hitherto met \vith no success. The gulf between rich and poor has not grown an inch narrower; it has even appreciably

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GUILDS

113

widened. It is the conviction of Guild-Socialists that the gulf will never be bridged, as long as the social problem is regarded as pre-eminently a question of distribution. Idle rich and unemployed poor apart, every individual has two functions in the economic sphere-he is both a producer and a consumer of goods and services. Socialists, in seeking a basis on which to build their ideal Society, have alternated between these two aspects of human activity. The Fourierists, the Christian Socialists and the Communists, with their ideals of the phalangstery, the self-governing \vorkshop, and the free Commune, built-and built imperfectly-upon man the producer. Collectivism, on the other hand, which includes most modern schools of Socialism, builds upon man the consumer. It is our business to decide which, if either, of them is right. It is the pride of the practical social reformer that he deals with' the average man in his average moments.' He repudiates, as high falutiI, nonsense, every attempt to erect a ne\v social order on a basis of idealism; he is vigilantly distrustful of human nature, human initiative and human freedom; and he finds his ideal in a paternal governmentalism tempered by a preferably not too real democratic control. To minds of such a temper, Collectivism has an irresistible appeal. The idea that the State is not only supreme in the last resort, but also a capable jack of all trades, offers to the bureaucrat a wide field for petty tyranny. In the State of to-day, in which democratic control through Parliament is little better than a farce, the Collectivist State would be the Earthly Paradise of bureaucracy. The Socialist in most cases admits this, but declares that it could be corrected if Parliament \vere demoC,S.G,

H

114

THE CASE FOR

cratised. The' conquest of political po,ver ' becomes the Alpha and Omega of his political method: all his cheques are postdated to the Greek Kalends of the first Socialist Government. Is, then, his ideal of the democratic control of industry through Parliament an ideal worthy of the energy which is expended in its furtherance ? The crying need of our days is the need for freedom. Machinery and Capitalism between them have made the worker a mere serf, with no interest in the product of his O\\Tn labour beyond the inadequate wage which he secures by it. The Collectivist State would only make his position better by securing him a better wage, even if we assume that Collectivism can ever acquire the driving power to put its ideas into practice: in other respects it would leave the weaker essentially as he is no\\t'-a \vage-sla ve, subject to the \vill of a master imposed on him from withollt. However democratically minded Parliament might be, it \vould none the less remain, for the worker in any industry, a purely external force, imposing its commands from outside and from above. The postal workers are no more free while the Post Office is managed by a State department than Trade Unionists would be free if their Executive Committees were appointed by His Majesty's 1\.linister of Labour. The picture I have dra\vn, it may be said, neglects an essential factor-Trade Unionism. The Collecti\Tist relies upon the orgalllsed bargaining power of the worker to correct the evils of bureaucracy; he looks forward to a time when, in every State department and ill every municipality, the right of the Unions to speak on behalf of their members will be fully recognised. As Mr. and Mrs. Webb, the Sir and I .. ady Oracle of the Socialist

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movement, laid down in the classic' final chapter of Industrial Dentocracy, Trade Unions, so far from becoming unnecessary in the Socialist State, will find there only their full development. Strong enough to resist bureaucracy, they ,vill embody that industrial freedom which the worker demands as his right. When Syndicalism first became a recognised force in this country, there was a regular scurry among the back-numbers to drink again of the invigorating draughts of Industrial De1nocracy. The famous final chapter ,vas constantly quoted to prove that there ,vas really nothing new in the essential parts of Syndicalism, and that Socialists had all along recognised the importance of Trade Unionism. The cob\vebby solution that is no solution at all \vas called to the aid of the reaction: and it \vas proposed to find, in Industrial Democracy, a via 1nedia which should satisfy the Syndicalists without violating the worn-out phrases of the Collectivists. Needless to say, such a solution has pleased none save its authors; but a discussion of it is the shortest way to the heart of the problem. The Collectivist is prepared to recognise Trade Unionism under a Collectivist regime. But he is not prepared to trust Trade Unionism, or to entrust it with the conduct of industry. He does not believe in industrial self-government; his' industrial democracy' embodies only the right of the workers to manage their Trade Unions, and not their right to control industry. The National Guildsman, on the other hand, bases his social philosophy on the idea of function. In the industrial sphere, he desires not the recognition of Trade Unions by a Collectivist State, but the recognition of a democratic State by National Guilds controlling industry in the common interest. I

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Those of us whose hopes of working-class emancipation are centred round the Trade Unions must be specially anxious to-day. When the ,var broke out Trade UnionislTI was passing through a critical period of transition, and it is just at such times that external shocks are most dan·gerous. Weary of their long struggle to secure 'reforms,' weary of trying at least to raise wages enough to meet the rise in prices; \veary, in fact, of failure, or successes so small as to amount to failure, the Unions ,vere beginning to take a wider view and to adopt more revolutionary aims. l\fere collective bargaining with the employers would, they \vere beginning to feel, lead them nowhere; mere political reforms only gilded the chains with which they \vere bound. Beyond these men began to seek some better way of overthrowing Capitalism and of introducing into industry a free and democratic system.

The first effect of this change of attitude was seen in the more militant tactics adopted by the Unions. The transport strikes of 191I and the miners' strike of 1912, little as they achieved in comparison with the task in prospect, served as stimulants throughout the world of Labour. The Dublin strike and the I.,ondon building dispute quickened the imaginations thus aroused and set men thinking about the future of Trade Unionism. If there were comparatively few Syndicalists, Syndicalist and Industrial U niOllist ideas \vere having a \\-ide influence throughout the movement, while the new doctrine of National Guilds was slo\vly leavening some of the best elements in the Trade Union world. In short, ,vherever the Unions were awake, the thoughts of their members were taking a new direction, and gro\ving bodies of Trade Unionists \vere

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demanding the control of industry by the workers then1selves. This idea of the control of industry, \vhich was forced to the front by the coming of Syndicalism ill its French and American forms, is not ne,,,, but is a revival of the first ideas of ,vorking-class combinations. It represents a return, after a long soj ourn in the wilderness of materialism and reform, to the idealism of the early revolutionaries. But this time the idealislTI is clothed not onl~y with a funaan1entally right philosophy, but also with a practical policy. The ne,,, revolutionaries know that only by means of Trade IT nionism can Capitalism be transformed, and they know also by what methods the revolution can be accomplished. They aim at the consolidation of 'frade Union forces, because beyond the Trade Union lies the Guild. Out of the Trade Unionism of to-day nlust rise a Greater Unionism, in which craft shall be no longer divided from craft, nor industry from industry. Industrial Unionism lies next on the road to freedom, and Industrial Unionism means not only 'One Industry, One Union, One Card,' but the linking-up of all industries into one great army of labour. But even this great army ,viII achieve no final victory in the war that reall), matters unless it has behind it the driving force of a great constructive idea. This idea Guild Socialism fully supplies. The workers cannot be free unless industry is managed and organised by the workers themselves in the interests of the whole community. The Trade Union, which has been till now a bargaining force, disputing ,vith the employer about the conditions of labour, must become a controlling force, an industrial republic. In

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short, out of the bargaining Trade Union must grow the producing Guild. In the Middle Ages, before the dark ages of Capitalism descended on the world, industry was organised in guilds. Each town was then more or less isolated and self-sufficient, and within each town was a system of guilds, each carrying on production in its own trade. These guilds were indeed associations of small masters, but in the period when the guilds flourished there was no hard-and-fast line between master and man, and the journeyman in due course normally became a master. The mediaeval guilds, existing in an undemocratic society, were indeed themselves always to some extent undemocratic; and, as Capitalism began to take root, inequality grew more marked and the guild system gradually dissolved. Our age has its own needs; and the guilds which Guild Socialists desire to see established will be in many ways unlike those of the mediaeval period; but both are alike in this, that they involve the control of industry by the workers themselves. In the earlier half of the last century there flourished a society, animated, no doubt, by the best intentions, which called itself' The Society for the Diffusion of Useful Knowledge.' It was the aim of this body, which had a most influential backing among capitalists, politicians and University professors, to demonstrate to the working class the benefits which they had received from the introduction of machinery and the growth of the industrial system. In its pamphlets, which were widely circulated, it pointed to the immense increase in the supply of material commodities which machinery had made possible, and to the consequent greater prosperity of the whole community. It also

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demonstrated to the workers the appointed functions of capital and labour in the industrial system, and the laws of political economy which finally determined their relative positions. Having done this, it paused satisfied, and thanked God that things were as they \vere. It is as a disturber of this commercial complacency that William Morris takes a foremost place among democratic \vriters. As poet and craftsman alike, he found his impulse to self-expression thwarted by commercialislTI; he opened his eyes and saw around him the products of commercialism, and knew that they were not good. He strove, in a commercial world, to make beautiful things that were not commercial; but, though he made beautiful things and made them a commercial success, he ,vas not satisfied. He desired to make beautiful things for the people; but he found that the people had neither mone)' to buy, nor taste to value, what he made. The more he sold his wares to the few rich, the more conscious he became that under commercialism there could be for the many no beallty and no appreciation of beauty. Thus it \vas that Morris passed from Art to Socialism, because he saw that under Capitalism there could be no art and no happiness for the great majority. As an artist, he based his Socialism upon art, as eacll of us who is a Socialist must base it upon that in life \vhich he knows best and values most. For commercialism is a blight which kills every fine flower of civilised life. Morris's conception of art was a great and wide conception. Art was not for him a mere external decoration of thjngs made. it \vas the vital principle that inspires all real making. He did not mean by

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art merely pictures, sculpture, poetry, music, or ' arts and crafts'; he meant the making of all things that can be made well or ill, beautifully or without regard to beauty. He held that all true art springs from the life of the people, and that, where their life is good, art will flourish naturally-that, where life is base, art can never flourish. He saw clearly that, so long as men remained in thrall to the industria] S)7stem, there could be no good art and no good life for the mass of the people. Perhaps he did not see so clearly the way out-that was less his business. What lIe did ,vas to put clearly before the ,vorld the baseness and iniquity of industrialism, and its polluting effect on civilisation despite the increase of material \vealth. That was enough for a man to do, and Morris did it \vell and thoroughly. Himself above all a craftsman .\vith a joy in the labour of his hand and brain, ~f orris could llot rest content with a world in which this joy in labour, to him the greatest thing in life, was denied to all but a few. He was b)1 nature a maker of tIlings, but the age in whicll he lived forced him to divert more and more of his energies into the making of trouble. Many people are puzzled at first to find in him at once ( the happiest of poets,' as ~Ir. B. Yeats called him, and a preacher of nlilitant Socialism. They fail at first to reconcile the quiet beauty of his poetry and his romances of his printed books and his decorations, with the idea of a revolt against anything. Yet the very qualities that \,,"ent to the making of these things also made l\Iorris a Socialist. He \vanted passiollately that the things men had to make should be worth making-' a joy to the maker and the 1:lSer.' It is unfortunate that so many people, especially in

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the Labour movement, know Morris only, or mainly, as the author of News from Nowhere. They will get a far clearer idea of his view of life from his books of lectures, such as Hopes and Fears for Art, in which he set out clearly his conception of the relation of art to the social system. They ,vill find there the patriot who loves his own country without hating or despising others, and loves it for what it is in itself and not for its position in the race of nations. They will find the believer not only in a popular art, bllt in an art springing directly from the free life of a free nation. Or, in the Drea11't of John Ball~ they ,viII find still more clearly spoken the message of a free England, in \vhich men can be happy because their lives are worth while, and they count as comrades and not merely as hands' in a profit-making system. Or, of his verse, let them turn to The Pilgr1:ms of Hope, one of the greatest of modern epics, unfinished as it is. There again they ,viII find the hope of a better world arising through the striving and willing of the conlmon people upon the wreckage of the old world. When they know these, they will be better able to understand News fro11t Nowhere, and it will seem to them less a vision of a far-off and even impossible Utopia than an expression of Morris's firm faith in the ultimate value of hunlan happiness. I have d\velt thus upon the Socialism of William Morris because I feel that he, more than any other prophet of revolution, is of the same blood as National Guildsmen. Freedom for self-expression, freedom at ,york as \vell as at leisure, freedom to serve as well as to enjoy-that is the guiding principle of his ,vork and of his life. That, too, is the guiding principle of National Guilds. We can only destroy the t)TranllY I

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of machinery--which is not the same as destroying Inachinery itself-by giving into the hands of the workers the control of their life and work, by freeing them to choose whether they \vill make well or ill, whether they will do the work of slaves or of free men. All Otlr efforts mllst be turned in that direction: in our immediate measures we must strive to pave the way for the coming free alliance of producers and consumers. This is indeed a doctrine directly in opposition to the political tendencies of our time. For to-day we are moving at a headlong pace in the direction of a (national' control of the lives of men which is in fact national only in the sense that it serves the interests of the dominant class in the nation. Already many of the Socialists who 4ave been the most enthusiastic advocates of State action are standing aghast at the application of their principles to an undemocratic Society. The greatest of all dangers is the' Selfridge' State, so loudly heralded these twenty years by Mr. 'Callisthenes" Webb. The workers must be free and self-governing in the industrial sphere, or all their struggle for emancipation will have been in vain. If we had to choose between Syndicalism and Collectivism, it would be the duty and the impulse of every good man to choose Syndicalism, despite the dangers it involves. For Syndicalism at least aims high, even though it fails to ensure that production shall actually be carried on, as it desires, in the general interest. Syndicalism is the infirmity of noble minds: Collectivism is at best onlJ the sordid dream of a business man with a conscience. Fortunately, we have not to choose between these two: for in the Gtlild idea Socialism and Syndicalism are reconciled. To it Collectivism will yield if only all

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lovers of freedom will rally round the banner, for it has a message for them especially such as no other school of Socialism has had. Out of the Trade Union shall grow the Guild; and in the Guild alone is freedom for the ,yorker and a release from the ever-present tyranny of modern industrialism.

CHAPTER V THE RE-ORGANISATION OF TRADE UNIONISM

events of the war have shown clearly to all the world, as nothing else -could have done, the potential strength and the actual weakness of Labour. To intelligent Trade Unionists allover the countr)' they have brought home the need for a drastic fe-organisation of the machinery of the Trade Union movement. More and more, the younger workers are seeing that no mere piecemeal adaptation of the old Trade U niOllism will meet the case: what is wanted is a new policy and a thorough reconstruction. Those who hold this view are not blind to the enormous difficulties that are in the way. We are a conservative race, and our conservatism is exaggerated in our institutions. The structure of the Labour movement has been erected piecemeal and without a de1iberate plan, and in the good old way we should vastly prefer still to proceed. But the moral of recent events is too plain to be ignored. The machinery of Trade Unionism is giving way under the pressure of new circumstances, and llothing short of drastic re-organisation can save it from collapse. There are at least two groups of events that are a clear sign of the crisis in Trade Unionism. Beginning before the war, but continuing without interruption THE

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during the war, the struggle between Craft Unionism and Industrial Unionism has done much to undermine the old order. The National Union of Railwaymen stands not only for a ne\v conception of "[rade Union structure, but also for a new policy. It is the new model' of twentieth century Trade Unionism as surely as the Amalgamated Society of Engineers was the new model' of 1850. Secondly, within the Unions themselves, we have the growing conflict between the leaders and the rank and file. This conflict finds expression in many different ways; but by far the most significant are the various rank and file movements centred in the workshop which have sprung up in many of the largest engineering districts. When Mr. Arthur Henderson and Mr. Lloyd George accuse the Clyde Workers' Committee of being 'in revolt against Trade Unionism,' they mean simply that the shop stewards who compose the Committee have a new conception of Trade Union action which they desire to substitute for the conception of Mr. Arthur Henderson and his fellows, and in pursuance of \vhich they are driven to take unconstitutional action and to set the officials of their U nions at defiance. There is a real conflict of policy and purpose between the old school of Labour leaders and the new school of , rank and filers,' and, whatever the issue may be, this conflict is likely to cause drastic internal changes in the Trade Union movement. The third problem has to do neither with the relations bet\veen particular Unions nor with the internal government of the Unions, but with the general co-ordination of Trade Union activities. The war has brought clearly into the light of day the general di.sorganisation of the army of Labour and the absence of any authority I

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able either to speak for Labour as a whole or to reconcile and co-ordinate the separate policies of the various sections. This weakness is especially clear in relation to the formulating of Labour, policy for the period after the war, most particularly the demands to be made in conllection with the Governlnent pledges to restore Trade Union conditions. I t seems to be no body's business, or at any rate not to be within any body's power, to do so much as -attempt to bring together and reconcile the conflicting sections of Labour opinion, or to provide a common policy for the skilled, the unskilled and the women Trade U niOllists. Our programme, therefore, of Trade Union reorganisation will fall mainly under three heads. We shall have to see what changes are necessary, first, in respect of the structure of the Trade Union movement; secondly, in respect of its internal organisation and government; and thirdly, in respect of the better coordination and solidarity of the whole army of Labour. I do not propose to go over again the ground already covered with some fullness in an earlier book of mine, l but merely to summarise the various problems and to suggest possible solutions, particularly in view of more recent developments of Trade Union action and theory. These developments have not altered the views suggested in that book; but they have in some respects materially added to and supplemented them. A short summary of the situation as I now envisage it will probably serve better than anything else to bring home the need for a thorough everhauling of the whole Trade Union movement. In theory, the great bulk of active Trade Unionists seem to agree that drastic changes are required. Put 1

The World of Labour.

Third edition.

1917.

G. Bell & Sons.

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the case for amalgamation, or the case for internal re-organisation, or the case for working-class solidarity before any big meeting of Trade Unionists, and they will cordially and heartily agree. But ask these same Trade Unionists to take the steps necessary to give effect to these ideas, and a very large proportion of them \vill draw back or remain apath-etic. At once difficulties will suggest themselves; at once the whole force of Labour's conservatism will array itself on the side of reaction. A movement that has grown as old as our Trade Union movement without any thorough overhauling has naturally gathered much moss, and the picturesque appearance which this moss presents seems to be regarded as a sufficient reason for not clearing it a\vay. Moreover, like all movements, Trade Unionism tends to develop into a vested interest. The official too often regards his job as a gilt-edged security, and his members as his private property. The member, especially in the Craft Union, is apt to look on all amalgamators and advocates of better organisation as sinister plotters with designs on the friendly benefits to which his contributions entitle him. These, and other similar causes, hinder the reorganisation of Trade Unionism on more efficient lines, and cause the advocates of solidarity, after a while, to give up the task in despair. How far has the war been able to shake Trade Unionism out of its lethargy, and how far are after-war conditions likely to stir it still more? On the answer to these questions largely depends our hope of re-organisation and of advance. It is certain that the events of the war, and especially the industrial changes which have resulted from the war. have awakened among Trade Unionists a quite unprecedented amount of intellectual

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activity. In every district up and down the country men have been trying to get a clearer view of Trade Union purpose and method. Circles have been formed for the study -of Trade Union problems: special committees of enquiry have been started by Trades Councils and Trade Union branches: the workers have realised more clearly than of old the need for education and enlightenment. These things will certainly produce their effect. Members of different Trade Unions and industries have been brought closer together, and have come to realise, not only each other's point of view, but the point of view that is common to them all. There is, then, hope that, if the need is clearly realised, and the remedy clearly set forth, the Trade Union movement will rise to the occasion, and re-adjust its machinery to meet the new conditions. If it does not, it is safe to prophesy that what it fails to bring about by voluntary re-adjustment will emerge in the long run out of devastating internal conflict. TRADE UNION STRUCTURE.-No one who has any claim to speak with authority in the Trade Union world now questions the need for amalgamation of Trade Unions on the most extensive scale that is possible. Everyone agrees that the continued existence of eleven hundred odd distinct Unions is both absurd and disastrous, and agrees in theory that the number ought to be drastically reduced. But everyone is not agreed on the form which amalgamation ought to take, and still less is everyone willing to make the mutual concessions by which alone amalgamation can be brought about. Broadly speaking, there are two conflicting theories of Trade Union structure. One party believes that skilled and unskilled should be organised in separate

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societies, and regards Trade Unionism mainly from the point of vie,v of the skilled craftsman, who desires to protect his standard of life not only against the employer, but also against the unskilled ,yorkers below him. This is the Craft Unionist position. Curiously and yet naturally this position finds allies among the unskilled, ,vho hold that by organising apart they can protect their interests against the skilled workers as well as against the employers, whereas if skilled and unskilled are organised together they hold that the skilled interest will inevitably triumph. On the other side are ranged those who believe that skilled and unskilled should be organised in the same Unions, and regard Trade Unionism mainly from the point of view of the class struggle. On this view, the differences bet,veen sections of the working class are fatal to the advancement of that class and of the community, and such differences, which can be only secondary, should be harmonised inside a common organisation built on a class basis. This is the Industrial Unionist position; but it belongs also to certain other types of Union \vhich are not strictly industrial' in structure. These t\VO theories lead to two di ffcring forms of Trade Union organisation. Craft Unionism groups in the same organisation all ,yorkers \vho are doing the same kind of ,york or \vho are engaged upon the same process-all \veavers, all carpenters, all clerks, all labourers. Industrial Unionism, on the other hand, groups in the same organisation all \vorkers who are co-operating in producing the san1e product or type of product-all \vorkers in or about mines, on or about railways, all engineering and shipyard workers, all building workers, etc. C

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This is a very rough statement of the rival theories, and there are numerous complications when we try to apply it in practice. For instance, either form of organisation may be broad or narrow. A Union may be confined to a single craft or industry, or several kindred crafts or industries may be grouped together in a single Union. In such cases, broad may fall Ollt with narrow, and yet broad and narrow ma'y combine to do battle with Unions of the opposite type. Roughly, however, despite complications, the distinction holds. Above the countless subordinate types of Trade Union organisation stand out the two main types-crafts and industrial, and between these two the battle rages. There are two main arguments, either in itself sufficient, in favour of Industrial Unionism. But both these arguments hold good only on an initial assumption. The first argument is that Industrial Unionism provides the stronger force to use against the capitalist. Advocates of Industrial Unionism always point out that against the mass formation of Capitalism a mass formation of Labour is needed, that Craft Unionism has not the strength to combat the vast aggregations of Capital, that it leads essentially to dissension in the workers' ranks, that it enables the employer to playoff one set of workers against another, and so to strengthen the capitalist organisation of industry. These arguments are overwhelming in force if, but only if. Trade Unionism is regarded as a class-movement based upon the classstruggle. If it is not, may not the skilled worker be right to fear alliance \vith the man further down, and may he not see more hope for himself in holding the unskilled worker under, and thereby preserving his

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own monopoly of labour? May he not be right, I mean, if, and only if, there is no class-struggle? Jack London in The Iron Heel and H. G. Wells in The Sleeper Awakes have both envisaged a state of Society in which Capitalism has triumphed for the time by buying over the skilled workers to its side, and with their help exploiting the unskilled the more securely and completely. Far be it from me to say that this, or anything like it, is in the mind of the Craft Unionist to-day; but it is, I feel, the logical outcome of Craft Unionism. If the skilled workman so much needs protection from the man beneath him that they cannot organise together against Capitalism, is it so long a step for him to ally himself \vith Capitalism, and to sell his class for security and better conditions under Capitalism? I do not for a moment suggest that any Craft Union would do this, though I do suggest that some capitalist will play' for it in the period of reconstruction after the war. They will come to the skilled Trade lTnions with specious proposals that offer immediate advantages to the craftsman, and in return for these advantages they will endeavour to bring the skilled Unions over to Capitalism, to achieve a 'National Alliance of Employers and the Better Class of Employed,' and so to make easier the path of exploitation. I do not suggest that there is any danger of such offers being accepted, if they are understood; but I do suggest that the sooner we abandon Craft Unionism the safer we shall be. We must base our Trade Union organisation firmly upon the class-struggle: we must so organise as to promote the unity of the whole \vorking class. Does not that mean that we mnst move constantly in the direction of Industrial Unionism?

RE-ORGANISATION OF The first argument in favour of Industrial Unionism, then, is this. It alone is consistent with the classstruggle: it alone is true to the principle of democracy and fraternity. The second argument is no less fundamental, and it again rests on an assumption. If the purpose of Trade Unionism is merely protective, if it exists only to maintain or improve conditions of employment within the wage-system, then there is no case for one form of organisation rather than another. We can decide as expediency may suggest. But if the purpose of Trade Unionism is a bigger and a finer thing than the mere protection of the material interests of its members; if, in fact, Trade Unionists ha ve set before themselves the positive aim of winning, through their Unions, selfgovernment in industry, there can be no doubt about the right structure. Clearly, Craft Unions, based on process and not on product, cannot make any effective claim to control industry. Only an Industrial Union, embracing the whole personnel of an industry, can assume control over that industry. It is, no doubt, natural that, in the past, Trade Unionists have thought more of the immediate effect of their organisation in maintaining or improving conditions than of the provision of a constructive alternative to the existing system. This is not true of the advanced sections in the Labour movement to-day. Some of thelTI at least see that their effectiveness depends on the possession of a constructive alternative; but there are sti11 some who are impatient of theories about the future organisation of Society. Such men feel that it is their first business to attack and overthro\v Capitalism, and that, till our industrial system lies in ruins, it is hopeless to think of detailed

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methods of reconstruction. This is certainly a shortsighted view, and it is of the greatest significance that the Guild idea is now taking hold of the workers with growing strength and rapidity. For, when once they grasp the central dogma of National Guilds, they will see that along with the work of destruction must go a process of building up, and that the new Society must be developed by the workers themselves out of the materials which the capitalist system affords. Guildsmen, at any rate, are in no danger of failing to understand tllls. They agree with the Syndicalists in recognising that the Trade Union is the germ of that body which will in the fullness of time assume the conduct of industry. It is important that they should go further, and see clearly that the success of their efforts depends on the development of Trade Union structure in the near future. Guild Socialists cannot afford to dismiss this question of structure as being merely a problem for experts in industrial action. It does matter, from the point of view of economic reconstruction, no less than from that of efficiency in the class-struggle, that Industrial Unionism should triumph as quickly as possible. Collectivists who pretend to be more or less sympathetic to Guild Socialism always plead that enlarged powers should be gi ven to the Trade Union under Socialism as an ' organ of criticism.' They maintain that the Unions, so far from losing their importance, will remain powerful, and will receive large powers of representation and consultation from the Socialist State. In short, they dream of industry run by a series of State departments which concede to the Unions, as bargaining bodies, complete recognition. But, in their vision of the future Society, the Trade

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Union remains, so far as control is concerned, always external, advisory, critical. It never assumes control, and leaves to the State the function of advising, criticising and bargaining as an external body. It is not necessary or relevant here to expose the futility of the Collectivist vie\v. \Vhat is important no\v is to point out that either of the t\VO possible bases of Trade Union organisation might conceivably suffice under Collectivisn1, though even here the industrial' basis is, from a fighting point of view, by far the more efficient. For the Guild Socialist there is no such choice. He looks forward to a state of Society in which the actual conduct of industry will belong to the Guilds, and he sees clearly that this will come about, not through the voluntary concession of such powers by the State, and still less through the setting-up of Guilds by the State,' but as the result of the persistent demands of the Trade Unions themselves. Only by the impetus of their o\vn intelligence and economic power can the workers pass from the era of collective bargaining to the era of collective control, to Guild Socialism from the wage -system. If, then, the \vorkers are to demand control from the State or from the employers, they must build up an organisation capable of assuming control. Clearly such a body must be industrial ' in structure. All \vorkers in or about mines must be in the Miners' Union, the whole personnel of the cotton mills must be in -the Union of the Cotton Industry. A body consisting of clerks or mechanics or labourers drawn from a number of different industries can never demand or assume the conduct of industry. It can secure recognition, but not control. A Postal Workers' Union or a Railway I

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TRADE UNIONISivI Union, on the other hand, can both demand and secure producers' control. This is no doubt why not a few Collectivists-many of whom are less fools than bureaucrats-have an exceeding tenderness for the principle of Craft Unionism. They are wont to dwell lovingly on the nature of the bond which binds fellow-craftsmen together; and, when they are driven from the advocacy of old-fashioned Craft Unionism by -its obvious impotence in face of modern Capitalism, they fall back upon a 'greater occupational unionism,' which unites several kindred crafts in one Union, but preserves intact the occupational or ' craft ' principle. One instance will explain this. Advocates of amalgamation on an industrial basis often have thrown in their faces the A malgamated Society of -Engineers, and we are told either that, this is amalgamation of the right sort. or that the A.S.E. has failed to eliminate such' craft' Unions as the Patternmakers, the Coremakers, and the Ironfounders from the engineering trades, and that, therefore, 'craft ' Unionism is right and amalgamation wrong. Whichever is said, the ans\ver is obvious. The A.S.E. is not an industrial but an occupational amalgamation. It includes men of a number of skilled crafts; but it has never aimed at organising every worker in the engineering industry. It is, therefore, not at present a body capable of assuming any great measure of industrial control, though it may prove to be the nucleus of such a body. But it could only become capable of control by becoming a complete Industrial Union. The structure of Trade Unionism, then, must be industrial, if it is either to serve its purpose of fighting Capitalism, or to take on its newer and higher function

RE-ORGl\NISA TION O~· of control. Out of Craft Unionism, ho\vever \videly its net is spread, can come only bureaucracy tempered by recognition: Industrial Unionism will not only serve as an instrument in the war against the wage-system, but will also prepare the workers, while they are engaged in the struggle, for the period of direct industrial control \vhich awaits them at its end. I have dealt with the problclll of structure briefly and without any attempt to face the obvious difficulties, because I wish here to paint in very broad outline the steps necessary for a re-organisation of Trade Union methods and policy. We have seen now, first, that amalgan1ation o'{ Unions is urgently needed, and secondly, that amalgamation ought to follo\v 'industrial' lines. We must now turn to the problem of internal government. Long before the war, difficulties between the leaders and the rank and file ,vere a familiar feature of Trade Union politics. Moreover, the situation in this respect was steadily worsening as the rank and file movement grew stronger. I'he ,var has served very greatly to intensify the old differences, and there is. no doubt that, as soon as the burden of ,var is removed, there will be warm times for certain ~rrade Union leaders. The industrial truce and the suspension of normal movements directed against en1ployers through constitutional I'rade Union channels have driven the rank and file to some extent to take n1atters into their own hands. Unofficial movements have gro\\Tn up, and unconstitutional action has been taken only to be discountenanced by the officials and execlltives of the Unions concerned. l\Iany hard things haye been said of officials, and, on their side, the officials have not only said man)' hard things of the rank

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and file, but also become less democratic and more prone to insist on their right to po\ver. This tendency has been aggravated by circumstances: the Government and the Press have not \vearied of appealing to the nice, good, well-behaved leaders against the naughty rank and file, and the leaders have been encouraged in the belief that it is for thenl to command, and for their menlbers to obey. , I anl a blessed G lendoveer : 'l'is llline to speak, and yours to hear.'

There are Glendoveers and to spare in the Labour 1110vement, and the powers that be take great delight in calling them blessed.' In fact, as we have prussianised our national life, we have, to the measure of our power, prussianised Trade U n'ionism. But, since it has not been possible to do the job ,vith any completeness, the result has been the creation of a truly fornlidablc movement of revolt. IJet us take t\VO instances of this tendency. Realising the need for cenira1ised control, the railwaymen before I

the war placed full power over trade movements in the

hands of their executive. At once came a reaction towards nlore denl0cratic control. ~"'irst, the general meeting of delegates managed to get control of big questions of policy, and subsequently to anlend the rules so as to recognise its right to control. Secondly, the District Councils, which are explicitly barred by the rules from taking any share in the formulation of policy, have in fact been the nlotive po\vcr in every forward 1110vement during the war period. They have pushed the executive and the officials; they have largely controlled the general meetings; and now, they are playing the foremost part in the formulation of N.U.R. policy. Thus the rank and file organisation

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OF

has, in this case, established its control over the official machinery of the Union. The second instance is that of tIle various \Vorkers' and Shop Stewards' Committees which have sprung up in a number of engineering centres, notably the Clyde and Sheffield.' These committees are probably the most significant of all the developments of latter-day Trade Unionism, and the problem which they raise is one which calls urgently for solution. Active Trade Unionists have long lamented the lack of interest among their fello\vs in Trade Union branch meetings. The branch meetings are usually, except on the occasion of some general forward movement, illattended, and serve in the main only as places at which cOl1tributions can be paid. The members of the branch have in common one with another their membership of the same trade or industry; but, apart from general trade questions, they have few common pre-occupations or problems. They work, as a rule, for various employers, and the employees of a single firm are scattered in a large number of distinct Unions and branches. In fact, in most cases, the Trade Union branch is based not on the workshop, but on the private residence. The Gorton branch of a Union will consist not of the men who work in Gorton, but of the men who live there: those who work in Gorton, but live elsewhere, will be scattered far and wide in other branches. It has long been the practice of certain Trade Unions, in certain districts, to appoint shop stewards to look after the interests of their members in the workshops. In a good number of cases, there have also been formed, either by the Unions or spontaneously, SllOp committees with the same object. Wherever SlICh organisation in the worshop has been strong, it has undoubtedly helped

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to make Trade Unionism a more vigorous and aggressive, if also a more 11nruly, force. In the last two years the \vorkshop movement has received a great impetus. Not only have more and more districts been setting up shop stewards and workshop committees: there has also been a tendency for the shop stewards from all the shops in the district to come together in a Central Committee, and for this committee to arrogate to itself very considerable powers. For instance, the Clyde strike of February 1915 was the work of an ad /zoe organisation, the Central Labour \Vithdrawal Committee. About the middle of 1915, this body adopted its present title of the Clyde Workers' Committee. It is, in the main, a committee of shop ste\vards, drawn from all engineering and shipbuilding Unions, and representing a very large proportion of the Clyde establishments. A similar committee, no less strong, exists in Sheffield, and there are similar organisations in many of the larger districts. No\v, these committees are both hopeful and dangerous. They are hopeful in that they have clearly found a method of organisation that is far more effective and stimulating than the older Trade Union methods: but they are also dangerous in that, by usurping the powers and functions of the recognised local machinery of the Unions, they throw Trade Unionism out of gear, and cause a deal of energy to be wasted in friction between the officials and the rank and file. . The true basis of Trade Unionism is in the workshop, and failure to realise this is responsible for much of the weakness of Trade Unionism to-day. The workshop affords a natural unit which is a direct stimulus to self-assertion and control by the rank and file. Organisation that is based upon the workshop runs the best

RE-ORGANISATION OF chance of being democratic, and of conforming to the principle that authority should rest, to the greatest pqssible extent, in the hands of the governed. This will fail to recommend it to those Trade Union leaders who resent every sign of activity among the rank and file as a slight upon their personal capacity for government, and who desire, in the true fashion of parliamentarians, to subordinate both the people and the legislature to the executive. But with their opinion we are not concerned. More conscious democracy is needed in the Trade Union movement, and this organisation based on the workshop does at least help to provide. 1£ the workshop is the right unit for Trade Union organisation, surely the moral is plain. Colossal waste of energy is involved where the workers have to build up an unconstitutional workshop organisation outside the recognised local machinery of the Trade Unions. Take the present position on the Clyde. There are in the Clyde area several hundred Trade Union branches connected with the engineering and shipbuilding industry. The vast majority of these are based, not on any particular works or workshop, but on the habitancy of their members. Above them come a considerable number of District Committees of various Unions, consisting of delegates from branches. Then come several allied trades committees and the District Committee of the Engineering and Shipbuilding Trades' Federation. This is the official and constitutional machinery. On the other hand, there are in most shops shop stewards, elected by the men in the shop, but ratified by their own Unions; sometimes there are shop committees also; and there is over these the unofficial Clyde Workers' Committee, which is

TRADE UNIONISM usually in conflict with the two most powerful official bodies, the Engineering and Shipbuilding Trades' Federation and the District Committee of the Amalgamated Society of Engineers. I t is not difficult to realise that this machinery involves a very great deal of unnecessary duplication. I am speaking now, not of the senseless sectionalism and overlapping between Union and Union or the crying need for amalgamation, but of the duplication of the branch and the district committee on the one hand, and the shop stewards and their joint committee on the other. Would it not be the best way out of the difficulty to sweep away this duplication by altering the basis of Trade Union organisation. Instead of the « residence' branch, let us have the « works' branch. Let large works be split, where necessary, into more than one branch, and small works be combined into a single branch; but let the general principle of organisation be that of the' works' branch. Then the shop stewards will become the branch officials, and the shop stewards' committee the branch committee. The District Committee, consisting as now of delegates from branches, will then consist, as the unofficial committees do to-day, of the leading shop stewards drawn from the shop branches. The unofficial workshop movement will have been taken up into, and made a part of, the official machinery of Trade Unionism. Should we be better off if this came to pass? I think we should, for two reasons. In the first place, the rank and file would be far better equipped for taking into their own hands the direction of policy, and for controlling and guiding their leaders ~ and, in the second place, the Trade Union movement would

RE-ORGANISATION OF have received a new orientation in the direction of control. It is certain that, where workshop organisation is strongest, the Trade Union demand for the control of industry is also strongest. The natural striking point for Trade Unionism is the workshop, and it is in the workshop that the most advanced demands will be formulated, and by workshop action that the greatest concessions will be secured. If we want Trade U nionism to develop a positive and constructive policy, it is in and through the workshop that we must organise; for there alone will constructive demands be made. The present organisation of Trade Unionism was suited to the movement in its negative and critical stage. But as soon as Trade Unionists set before themselves the object of supplanting the employer in the control of industry, they must take the works as their basis of organisation, and strain every nerve to win in the workshop and the works a direct control of production. I am here concerned with this policy only in so far as it suggests structural and governmental changes in Trade Union organisation. The changes I have outlined above seem to me to be the smallest that can avert calamity in the Trade Union world. Unless they are made, officials are doomed to get more and more out of touch with the rank and file, the official machinery of Trade Unionism is bound to find itself confronted with stronger and stronger unofficial machinery based on the workshop, and a vast amount of the energy which ought to be directed to the winning of control by the Trade Unions will inevitably be dissipated in internal conflict. If we \vould avert these things, we must overcome our conservatism, and have

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the courag~ to attempt a drastic reconstruction of Trade Unionism. I have dwelt at length upon this questIon, because it seems to me at the moment the most important of the many questions of internal policy that confront the Trade Union movement to-day. I can only deal more briefly with other changes that are hardly less urgently required. \Ve have seen that amalgamation on ' industrial' lines is an essential step in the direction of control. But we must not imagine that amalgamation is simply a matter of taking a number of Unions and throwing them into one, or a mere absorption of small Unions by large ones. Amalgamation both necessitates and makes easier large changes in internal organisation. For instance, there could be no better opportunity for a change in the basis of the Trade Union branch from 'residence' to 'works' than an amalgamation of Unions, which would enable a new constitution to be drafted to suit the new conditions. Again, amalgamation must make provision, wherever possible, for the representation, within an industrial Union, of crafts, sections and departments. I t must safegnard,and provide means of expression for, sectional interests within the amalgamation which expresses the solidarity of the ,vhole industry.1 Yet again, the Industrial Union, by reason both of its size and com~ plexity and of its class structure, calls for more elastic and democratic methods of government than have hitherto prevailed. The problem of legislative and executive power in the Trade Union movement has always been one of considerable difficulty. Every Union has its Executive 1 See The lVorld OJ Labour, Ch. YIIL, for a fuller treatment of thii and the following points.

I44

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Council, which is, under the rules, the supreme executive authority; and every Union has also some higher authority, more of a legislative character, for the making of rules. Rules, ho\vever, deal mainly with internal matters, and the most important part of a Union's work is concerned \vith its external relations, negotiations and settlements with employers, or with the State. Of recent years, there has been a growing struggle for the control of these questions of policy between executives and delegate meetings. Oldfashioned Trade Unionism generally solved the difficulty by the use of the referendum; but the weakness of the referendum, except \vhere a very simple and definite question can be submitted, is no\v generally realised. The old problem therefore recurs \vith renewed intensity. The miners settle all important issues of policy by means of large and representative delegate meetings. The railwaymen at first vested final power of settlement in the hands of their Executive; but almost at once they took this power away and placed it in the hands of their General Meeting of representatives. Among the engineers, while the districts enjoy considerable autonomy in local movements, the supreme control of policy rests upon the Executive. 1 Here interesting developments have taken place during the \var; for, without constitutional sanction, the Executive have twice called National Conferences and thrown upon them the onus of taking difficult and detailed decisions which could not have been dealt \vith by referendum. These developments point clearly in the direction 1 Suhject to possible interference by a Delegate ~feeting of a somewhat unrepresentative character.

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of all enlarged use of representative meetings for the decision of important issues of policy. There is a very great advantage in getting such matters dealt with and settled by men coming directly from the workshops, who will be able to go back and report fully to their fellows what they have done and why they have done it. Only by some such method can the Executive and the Head Office be kept closely in touch \vith feeling in the districts, or the distriCt5 be made aware of the exact nature of the problems with \vhich the Executive and the Head Office have to deal. \Ve must, if we would fit Trade Unionism for the ne\v tasks \vhich lie before it, make the machinery of the Unions more democratic, and adjust it more thoroughly to the ne\v conditions. If the employers are learning the lesson that obsolete machinery in the workshop does not pay, it is time that Trade Unionists learnt that it does not pay in the Labour movement either. So far we have been speaking only of the structure and government of individual Trade Unions. It remains to say something of the co-ordination of the whole army of Labour. We have seen that the Industrial Union possesses this enOrlTIOUS advantage over the Craft 1T nion, that it does express in miniature the class structure of Society. It does bring skilled and unskilled together in one organisation, and thereby go far to destroy snobbishness and exclusiveness \vithin the working class. But even Industrial Unionism is not without its perils, especially in view of the immediate economic situation. l\fay not the workers in a particular industry see the prospect of greater immediate advantage to themselves by combining \vith their employers to exploit the consumer than by combining with their fello\v-\vorkers in other industries C.S.G.

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to fight against Capitalism? I have no great belief in the reality of this danger; but it is as well to face it, such as it is. Especially under a Tariff system, \vill not the interest of the workers be enlisted on the side of the employers in securing preferential treatment for their industry? This, at least, I ShOllld regard as an argument rather against Tariff Reform than against Industrial U nionisnl. And, in any case, I do not think the danger is made greater by Industrial U nionism. The gravest danger, as I have said, appears to be that of an alliance between skilled workers and employers; and the coming of Industrial Unionism would certainly serve to remove this danger. It will, however, be agreed that it is not enough to amalgamate Unions by industries, or even to create blackleg-proof Unions in each industry. There is also the prohlem of the unification and co-ordination of the whole force of Labour. The events of the war have 'brought out very clearly the fact that there is no body which can really claim to represent Labour as a whole or to direct Labour policy. They have also shown no less clearly the need for some such body. We have now a number of bodies which serve, more or less, to co-ordinate l~abour activities. First, there is the Trades Union Congress, an annual gathering of most of the principal Unions, primarily official in character, meeting for one week in every :rear, and always clogged \vith futile and detailed resolutions of minor importance. The Congress elects annually its executive, the Parliamentary Committee, consisting entirely of officials, and meeting monthly during the year. Secondly, there is the Labour Party, a federation of Trade Unions, Trade Councils and Local Labour

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Parties, Socialist Societies and one or two miscellaneous bodies. This too holds an annual conference, and has an Executive Committee corresponding to the Parliamentary Committee of the Trades Union Congress. 'rhirdly, there is a Joint Board, representing the two Committees, \vhich t~kes action on matters affecting the movement as a whole. In addition to these, there are certain ad hoc bodies, which have sprung up during the war period. These are, first, the War Emergency Workers' National Committee, \vhich includes both the above and also many other bodies, Trade Unions, Co-operative bodies, Women's Societies, Socialist Societies, etc., and secondly . the Joint Labour Committee on After-War Problems, \vhich represents the Trades Union Congress, the Labour Party, the General Federation of Trade Unions, and the \V~r Emergency \Vorkers' National Committee. There iS then, no lack of machinery: the trouble is in quality rather than quantity. For none of these bodies has really any power or authority. either in external or in internal policy. They cannot bind the Unions in dealing with the employers or the State; and they cannot harmonise with any authority internal differences \vithin the Labour movement. Under present conditions, this is certainly fortunate for Labour; for the Trades Union Congress and the Labour Party are at present dominated by the old ideas of Trade Unionism. The dominance of the official element, the ruthless use of the block vote, the congestion of business and the manipulation of the platform combine to secure reactionary decisions. In the quarrel bet\veen Craft and Industrial Unionism the Trades Union Congress is on the side of the craftsJ

RE-ORGANISATION OF men: the Labour Party is dominated by the big Unions, which desire to make it rather a federation of trades than a class organisation. Merely to increase the powers of the central bodies will not, then, achieve the end in view; what is wanted is a change in their composition and outlook, a destruction of the block vote and the card vote, the re-admission of the Trades Councils to the Trades Union Congress, a freer rank and file delegation from the Unions-above all, freedom for the individual chosen by his fellows to represent them at the (,ongress or Conference to cast his vote freely as a representative, and not as a mere delegate of the Union as a whole. At present, before the Trades Union Congress or t.he Labour Party Conference meets, there are in many cases separate meetings of the delegates from the various industries-miners, cotton operatives, transport workers, engineers. At these Ineetings, the agenda is discussed and the attitude of the group decided upon. Thereafter, however narrow the majority may have been, the whole voting strength of the group is not infrequently cast on the side of the majority. For instance, the miners may have decided by a small majority to support a particular resolution: if subsequently this resollition comes up for a card vote, the whole 600,000 votes of the miners will be cast in its favour. This distorting mirror of Trade Union opinion is an unmitigated nuisance. It robs the Congress proceed·~ ings of all real interest: it makes the individual delegate a mere voting machine, and impels him to regard the Congress more as an annual otlting than as a serious conference on urgent problems. Not till this and similar abuses have been swept away can we set about

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the building of a real central authority for the Labour movelnellt. Centralisation is needed not only nationally, but also locally. The Trade Union branches in a to\vn or district to-day are far too isolated, and have far too few points of contact or opportunities for interchange of feeling and opinion. The Trades Councils have been ostracised by the Trades Union Congress, deprived of industrial functions, and starved for money. Only with the coming of a political Labour movement have they found any encouragement or opportunity for effective action. One of the mest urgent problems of the day is the direction of the activity and energy of the Trades Councils into effective industrial channels. They are in many ways the soundest part of the Labour movement, the most imbued with the clas'S spirit and the most accessible to ne\v ideas. 1t is criminal to allow their energy and initiative to run to waste. What, then, should be the function of the Trades Councils in are-organised '"[rade Union movement? First of all, they should ~erve as the centres of Labour propaganda and education. 1'hey should n1ake Trade Unionists, and, having done this, they should make good and enlightened 1'rade Unionists. 1'he Trades Councils should be linked up closely ,vith the educational side of the Trade Union movelnent, with the Workers' Educational Association and with the Labour Colleges. They should run, in connection \vith these bodies, classes on industrial and kindred subjects, and they should serve to bring together into one fellowship the whole Trade Union life of their district. Secondly, they should be given new industrial functions. The control of the Labour Exchanges, either wholly or iointlv with the employers, should pass into their hands,

RE-ORGANISA TION OF

and they should assume a share in the control of the provision for and against unemployment. Local federations of Trade Unions should be linked up with the Trades Councils; they should be kept fully informed of all local movements, and should ser\Te as centres for information about and research into local industrial conditions. Moreover, the waste and overlapping involved in the separate existence, in many towns, of Trades Councils and Local Labour Parties should be done away \vith, and there should be one body with two distinct wings, or aspects of activity. Clearly, if the Trades Councils are to fulfil these functions, they must have money. They will need buildings of their own to serve as centres for the whole Labour life of their district, for meetings, demonstra.. tions, conferences, concerts, plays and all other aspects of the industrial, political, educational, research and social work of the Labour movement. Whence, then, is this money to conle? Clearly, it can come only out of Trade Union contributions. Every Trade Union should insist that all its branches shall affiliate to the local Trades Councils, and Councils should be formed wherever they do not exist. Then it should be made possible for branch contributions to the Trades Councils to be increased, in order that the local life of Trade Unionism might be made more vigorous and more class-conscious. No doubt, there will be many to whom these hope~ of Trade Union re-organisation will appear as dreams unlikely of fulfilment. I reply that the only hope for Trade Unionism lies in a recovery of its power and will to dream dreams-and to fulfil them. Trade Unionism has got into a rut: it has become no less conservative than the institutions which it is its mission to destroy

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15 1

and to supplant. The things we need most in the Trade Union movement to-day are not even the big structural changes which I have endeavoured to outline, but faith and idealism and mutual trust-not in leaders, but of the rank and file in thenlselves. If we can get these, or even get a strong minority imbued with the~e, the changes in machinery will be easily brought about. It is often said that what the Trade Union movement needs most is intelligent and clear-sighted leadership. This is both true and untrue. It is not mainly upon great national leaders that the future of Labour depends, but on local and workshop leaders, upon the intelligent minority among the rank and file. We need a policy and a method of organisation which will make the Trade Union movement the best possible training ground for such men-which will at once keep them in the most direct contact with the mass of Trade Unionists, and give them responsible work to do which will call for all their intelligence and all their force of character. There are great obstacles to overcome. We have to draw these men from industry, and industry under present conditions is organised oy Capitalism to provide not intelligence and self-reliance, but servility and automatism. Only through their own organisations can the workers hope to counteract this tyranny of industrialism: and the method clearly prescribed for them is that of a progressive invasion of capitalist control of industry, a progressive wresting of the right to make decisions from Capitalism and a vesting of it in the workers themselves, a progressive atrophy of Capitalism corresponding to a development of function and opportunity and power for the proletariat. This is the true line of advance; and this policy Trade

tRADE UNIONIS1vI Unionism must pursue, not only in its dealings with employers and with the State, but also in refashioning its own organisation. New functions call for new methods and new n1achinery; but above all, they call for new men. Trade Unionism must become again a democratic movement, basing itself upon the workshop, and finding in the workshop the source and replenishment of its po\ver. And, in proportion as the workshop is made the centre of Trade Union life, these other things will be added unto it-new functions, new methods, new Inachinery and new men.

CHAPTER VI THE ABOLITION OF THE 'VAGE-SYSTEM

I.

PAY AND \VAGES

WE are all fanliliar \vith those critics of the economics

of National Guilds who protest that the difference between ( pay' and 'wages' is purely nominal, and refuse to recognise ( the abol_ition of the \\Tage-system ' as a reasonable or practicable aim. Always, they tell us, there will have to be some form of payment for service rendered, or for citizenship, and to them it makes no difference whether this is called ( ,,,ages ' or something else. National Guildsmen are inevitably impatient of such critics; because, in their minds, the abolition of the wage-system is present as the economic postulate of National Guilds. They do not mean by wages' merely (sonle form of payment': they mean a quite definite form of payment which is an economic postulate of capitalisnl. In speaking of the wage-system, they are speaking of the system under which labour is bought and sold in the labour market as an article of conl111erce. In demanding the abolition of wagery, they are repudiating utterly the idea that labour is a commodity, cr that it ought to be bought and sold for what it \vill fetch in a labour market.' By' wage,' they mean the price paid for labour as a commodity, and for this method of I

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payment they \vish to substitute another and a better method. National Guildsmen have always recognised that there is more than one alternative to the wage-system. In general, they have contrasted chattel-slavery, wageslavery, and National Guilds, and, \vith special reference to the propaganda of nationalisation, they have pointed to the danger that the wage-system might continue under State Socialism, and the State continue to buy its labour as a commodity. Just as the labour of postal or tramway workers is treated as a commodity to-day, even though their employer be a Government department or a local authority, the labour of all workers might be so treated under a universal regime of Collectivism. It might, or, again, it might not. The omnipotent State 1night decree the ab01ition of rent, interest, and profits, and thereafter pay its employees on some basis other than the wage-system·-perhaps equalit:r. Or, again, it might not. There is no assurance that State Socialism would abolish the wage-system: indeed, there is every probability~ that it would not. For it would not strike directly at the wage-sy~stem, which is the root of the whole t)7ranny of capitalism; and only a direct blo\v at the root is likely to avail. There are four distinguishing marks of the wagesystem upon which National Guildsmen are accustomed to fix their attention. Let me set them out clearly in the 5implest terms. I. The \vage-system abstracts labour' from the labourer, so that the one can be bought and sold without the other. 2. Conseqnently, \vages are paid to the wage-\vorker only when it is profitable to the capitalist to employ his labour. I

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3. The wage-worker, in return for his wage, surrenders all control over the organisation of production. ~. The \vage-worker, in return for his wage, surrenders all claim upon the product of his labour. If the wage-S)7stem is to be abolished, all these fOlIr marks of degraded status must be remoyed. National Guilds, then, must assure to the worker, at least, the following things : I. Recognition and payment as a htlman being, and not merely as the mortal tenement of so much labour po,ver for which an efficient demand exists. 2. Consequentl~y, payment in employment and in unemployment, in sickness and in health alike. 3. Control of the organisation of production in co-operation with his fellows. 4. A claim upon the product of his work, also exercised in co-operation ,vith his fello\vs. These four claims I propose to analyse in what follo,vs; but, first, let nle try to clear away what seem to be real misunderstandings in the ,yay of the acceptance of our economics-misullderstandings which come partly of terminology, and partly of the illustrations which we employ. We are fond of saying that in the Army men's sense of service is heightened because they receive not wages, but pay. But, in fact, the conditions of service in the Army are, as we all know, very far from removing the disabilities of labour. Our Army is a class Army, in \vhich the private has no effective share in the orgaillsation of the Service. Nor has he any share in the disposition of the spoils of victory; for these are apportioned by a secret class diplomacy. His pay' may not be determined accurately by the state of the labour market; but there is no doubt that the prevailC

ABOLITION OF ing standards of wage payment have a very great influence in determining its amount, especially with regard to separation allowances and the variation of pay and allowances bet\veen grades and ranks of the Service. Only in one of the four respects we have lllentioned does he differ toto ccelo from the wage-earner, and that is in that he is paid alike in employment and temporary unemployment, in sickness, short of discharge, and in health. National Guilds111en, therefore, use the exampl€. of the soldier in order to elllphasise one of the four great iniquities of the wage-system; but they do not, therefore, impl~y that the soldier's condition is that of an economic or social paradise. Indeed, they explicitly affirm that this feature of the soldier's service, wherein it differs from the wage-system, is found also in chattelslavery. This point is emphasised here, because it is one in respect of which National Guildslnen are often misunderstood. Both in the case of the ArnlY, and in the parallel case of the Panama Canal, our arguments have been assailed on the ground that the discipline in these cases is more autocratic and the subordination of the worker proportionately 1110re complete than under the unmodified wage-systenl. This is perfectly true; but it does not alter the fact that in these cases one of the four great disabilities of the worker has been removed \\7ithout a return to chattel-slavery. At the same time) it serves to emphasise the danger of mistaking thE abolition of one factor in the wage-system for the abolition of the system itself. There is, as we shall see, a real peril that the abolition of one factor apart from the others may in effect bring ''lith it a virtual rettlrn of chattel-sla·very. Under chattel-slavery, two of the four iniquities of

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the wage-system did not exist. Labour was not abstracted from the labourer, and, consequently, employment was not abstracted from unemployment. Let us profit by reflection upon this fact. We must demand, and that firmly, the removal, not of one or t\VO or three of the four disabilities, but of them all. And, if \ve are to make our demand effective, we must have to our hands the means.

II. LABOUR AND THE IJABoURER I have so far done little more than repeat, with a few cautions, the classic diagnosis of wage-slavery advanced by National Guildsmen. I \\Tant now to turn to the examination of the first of the fonr diseases which afflict the industrial system, and to the remedies proposed. It is the essence of wage-slavery that it abstracts labour from the labourer, and countenances traffic in labour \vhile it no longer permits traffic in men. There \vas a time \vhen this abstraction seemed to those \vho fought to bring it about the realisation of human freedom and equality. No longer, they proudly proclaimed, could man be treated as a commodity, devoid of rights, to be bought and sold in the market for a price, and to be o\vned and controlled absolutely by his lord and buyer. The \vorld put a\vay chattelslavery as an unclean thing, and in name made all men equal before the la\v. But it did not make the la\v itself equal before men; nor could it make men equal before capital. To chattel-slavery, therefore, succeeded 'the economy of wages,' forerunner of the 'economy of high \vages.' The employing class easily reconciled itself to the loss of ownership over men, when it found

ABOLITION OF the hiring of their labour a cheaper and more efficient instrument for the making of profits. The landlord readily acquiesced in the emancipation of the serf when he saw that thereby he escaped the responsibilities of landholding, and gained his freedom to exploit his land at will. In short, under chattel-slavery and serfdom the ownership of capital and of labour was in the same hands; for the rich man effectively o\vlled both land and capital, labour and the labourer. The wagesystem has changed all that by divorcing the ownership of labour and capital; for it has left capital in the hands of the few, and has made ~f the many a class that possesses nothing sa\re its own labour. Fundamentally, then, in its economic aspect the change to wage-slavery is a change from integration to disintegration; a division between two classes of the o\vnership of the means of life. The effect of this disintegration was at once not simply to divorce the ownership of men from the ownership of commodities, bllt to divorce the majority of men from the labour embodied in them. Under chattel-slavery, tIle owner bought a man entire; under the wage-system, he buys merely so much or so long of a man's labour. This once seemed a great advance, and in many ways \vas an advance. But so far as industry was concerned, it \vas a. set-back as well as an advance. It constituted a recognition of the fa~t that all men have rights as men, and that no man ought to be, in the absolute sense, lord of another; but it also effectively prevented those whose rights \vere thus recognised from exercising their most important right, the free disposition of their service. We ml:st not minimise the importance of the step taken by the abolition of chattel-slavery; but we must also fully recognise ho\v far progress has

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been thwarted by the separation of the o\vnership of labour from the ownership of capital. Some who recognise this are too fond of describing the revolution wrought by the abolition of chattelslavery purely as a division between the labourer and his labour. It is even more profoundly a division of ownership, a disintegration of industry, \vhich is at the same time a step towards a new integration. They who own both capital and the labourer exercise an indisputable control over both: they who own only labour must sell their labour to the owners of capital: they who own capital continue to control, though not to own, the labourers. There is, therefore, no \vay out of the \vage-system by a mere re-uniting of labour and the labourer; the only \vay out is for the labourer to secure control of capital as \vell as labour. Thus far the arguments of National Guildsmen are practically identical \vith those of the Distributivists and of 1\'Ir. Belloc. They begin to diverge when the words 'ownership' and 'control' come to be more closely examined. Mr. Belloc looks to a distribution of capital among the owners of labour: National Guildsmen continue to insist on the need for collective ownership of capital by the State. What bearing have our reflections upon these two views? I must divide my answer into two parts, the first relating to the complete system of National Guilds which I have in view, and the second to the period of transition to that system. Why do I maintain that National Guilds will serve to realise economic freedom if they will not give to the individual owner of labour any direct ownership of capital? I do so because they will give him, with his fellow-citizens, a collective ownership and control of capital, \vhich will

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be one guarantee of his exercise of his right of ownership and control of labour. That is to say, National Guilds imply a democratic State. There may be some to whom this seems, at first sight, an admission of the Collectivist case. Surely, I shall be told, this is an admission that a democratisation of the State can bring about industrial freedom. The verbal truth of such a statement, I, at least, have never denied; for precisely \vhat National Guildsmen have held is that democratisation of the State is impossible except by a frontal attack upon the wagesystem itself. Everything, therefore, turns upon the period of transition, and the means to be adopted in destroying the wage-system. The operation of the wage-system has caused both labour and capital to pass from an individual to a , joint stock' exercise of ownership. Both profits and \vages still pass ultimately to the individual, but their control has been transferred to companies, syndicates and rings, on the one hand, and to Trade Unions on the other, in all the principal industries. The problem of transition, therefore, cannot be regarded in terms of the individual, but must be regarded in terms of the combine. It seems to me the main fallacy of the Distributivists that they refuse to envisage the period of transition in terms of human aggregates. Even if the individual distribution of ownership were the end, it could not be the means or the method of destroying the \vage-system. The real problem, then, is that of the nature of Trade Union intervention in industry. l\iust that intervention take the form of demanding an ever-increasing share in the ownership of capital, or can it be content with assuming a complete control in addition to its

THE WAGE-SYSTEM present ownership of labour? What we have said above seems to indicate that it cannot stop short of a demand for the ownership and control of capital. We have said above that, under National Guilds, this ownership would not be exercised by the Guilds but by the State. But National Guildsmen, of course, do not recognise the State of to-day as a body capable of exercising ownership on behalf of the con1munity. We are, therefore, driven back, in relation to immediate policy, upon a further question. How far, in tIle transition period, can the ownership of capital which the workers must have be achieved by means of the State, or how far must the workers themselves provisionally assume ownership in order to create a democratic State to which they may transfer it ? The answer would seem to be this. The first and most important task for the workers is that of perfecting and completing their control of labour, which will, at the same time, place in their hands the po\ver of conquering and democratising the State; but if at any point it becomes necessary for the control of labour that they should assume any measure of ownership or control of capital, they should not hesitate to fight for this also in the industrial field. The exact implications of this view are not, perhaps, immediately clear. It means no less than this; that at some time before the wage-system is ended, it may become necessary for Labour to take a hand in the running of industry, and to accept what is sometimes called 'a common responsibility with capitalism.' There may come a time when, owing to Labour pressure, capitalism and the capitalist State are no longer strong enough to control industry alone, and, at the same time, the workers are not strong enough to assume C.S.G.

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ABOl~ITION

OF

complete control. Then may come the offer of partnership, envisaged long ago by the authors of National Guilds. In such case, what could Labour do but accept a sort of partnership, \vith a firm intention of dissolving it as soon as the requisite strength had been attained? This way clearly lies a danger; but the danger is less in the suggestion itself than in the possibility of its acceptance as an immediate plan of campaign. For it is certain that the time for such a partnership is not yet. It could be acceptable only when the fabric of capitalism had been undermined by the perfection by the workers of their control over labour; and it could be assulned only upon terms of, at least, full equality. Nothing less than half can be good enough to balance the danger involved for l~abollr in a jOillt respollsibility with capitalism. But the day. of such equality of Labour has by no means arrived; and it will arrive only if the workers concentrate for the present upon the perfecting of their control over their labour, by a constant extension of their power and authority in mine, railway, factory and workshop. The extension of control over labour is for the immediate future the true path for Labour to pursue. Lest I seem to nave digressed idly and in vain from my starting point, let me try to sum up in a few sentences the general purport of these reflections. Chattel-slavery combined the ownership of capital and of the labourer in the hands of the fe,v. Wage-slavery divorced these two forms of ownership, and thereby also divorced labour from the labourer. The wagesystem must end with a re-integration, with the placing in the hands of all of both capital and labour. In order to bring this about, tIle wage-earning class

THE WAGE-SYSTE1I must assume control of capital. This control, under National Guilds, will be exercised collectively, through the State; but, as the State can be democratised only by the growth of Labour's industrial power, the workers must be prepared, if necessary, to assume, through their Trade Unions, a half share in the ownership of capital, as a step in the direction of National Guilds. They must not, however, accept any joint responsibility with capitalism in return for less than a half share in ownership, and the day for such a share is not yet. For the present, therefore, the task of the workers is to concentrate on increasing and perfecting their control of their labour, which is the basis of their industrial power.

III. SECURITY The inevitable result of the divorce of the ownership of labour and capital has been the loss of security by the wage-earner. Speaking broadly, the slave was

secure; his job was continuous, and his master was

obliged to maintain him in employment and in unemployment, in sickness and in health. This security, which was a security without rights based upon the denial of freedom, the wage-system swept away. For an actual security based upon bondage it substituted ~ no less actual insecurity based upon an incomplete personal freedom. Our problem to-day is that of re-establishing security without re-instituting virtual chattel-slavery. In the Tudor period, when the migration of workers from agriculture to the factories threatened to deprive the landowner of the means of tilling the land, legislation ,vas enacted to prevent the workers from moving

ABOLITION OF freely. Without a security at all comparable to the security of chattel-sla\rery, the worker was tied to his employer. In our own time, the passage of the l\funitions Act placed for a time many workers in a similar position. The employer could refuse his employee a leaving certificate, and so prevent hinI from getting work elsewhere, and, at the same time, ,vithhold from him both work and 'vages. Even now, though this abuse has been modified, the worker who is subject to the Munitions Act is virtually tied to his employer, receiving in return security of employment. The War Munition Volunteer and the Army Reserve Munition Worker are even tied, not to a particular employer, but to any employer to whom the Government may send them. Under such conditions, the worker reco\rers the security of chattel-slavery; but he does so at the sacrifice even of the limited freedotTI to choose his employer which the wage-system has hitherto allo\ved. One of the objects which National Guildsmen must attain in destroying the wage-system is the re-establishment of security; but they must be\vare lest, in seeking this, they succeed only in riveting the chains more firmly upon the working-class. This is the peril that lurks in some of the projects for the re-establishment of security which are now being put forward in the name of reconstruction. The proposals fall into two classes. On the one hand, it is suggested that the State should assume the responsibility for security of employment or for maintenance in unemployment on behalf of the ,vhole working-class. On the other hand, it is suggested that the maintenance of the worker in employment and unemployment alike should become a direct charge

THE WAGE-SYSTEM upon industry itself. And these proposals are applied to periods of sickness as well as to unemployment. Within restricted spheres, both principles are operative at the present time. On the one hand, we have the State administration of Health and Unemployment Insurance, and a certain amount of State relief of unemployment under the Unemployed vVorkmen Act : on the other, we have the employers' contributions under the Insurance Act, and, ,vhat is by far a purer case, the Employers' Liability Act and the vVorkmert's Compensation Act. Moreover, in the Insurance Act \ve have a mixed principle, which makes the employer to some extent an agent of the State and an intermediary between the State and the workman. It is, however, generally recognised that none of these measures constitutes an establishment of security and active propaganda is proceeding in respect of the two rival methods. The advocates of State action desire the complete assumption by the State of the liability for the provision against and for unemployment, on a non-contributory principle-that is, out ot revenue raised by taxation. To this it is objected by employer and workman alike that it would imlnensely increase the element of bureaucratic control over industry, and by workmen, in addition, that it would place I"abour as completely in the hands of the State as it is now placed there by the ~ful1itions Act and the Military Service Acts. The saner advocates of State action reply that the remedy lies in placing the adn1inistration of Employment Exchanges and of the provision for and against unemployment, not in the hands of State officials, but in the hands of employers and workmen jointly. Here, again, objection is taken 011 the ground that this \vould involve the expenditure of money

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raised b~y public taxation by bodies not publicly responsible, or, at least, not pllblicly controlled. This is, indeed, a serious objection, because it will probably shipwreck the scheme. If' ptlblic money' is to be expended, Parliament and the Treasury will insist on controlling the expenditure of it. If this happens, we at once find ourselves back under the domination of bureaucracy. We shall be better able to meet this difficulty if we first look at the opposing solution of the problem. By the opponents of State control, among whom National Guildsmen, as ad,rocates of industrial autonomy, most naturally find their place, it is urged that the way out of the difficulty is for indllstry itself to assume the burden. Nor is this put forward as a mere expedient; for it is clear that National Gtlilds mllst afford security by assuming responsibility for the Guild members in employment and in unemployment, in sickness and in health. This suggestion at present lacks precision; but it seems to assume roughly this form. Each industry, it is proposed, should assume the responsibility for its whole personnel, in bad and good trade alike. 'fhe unemployed, and probably the sick also, should be a charge upon the industr)T, and should be maintained out of its product. To the capitalist, it is pointed out, this principle already applies: he, at any rate, can be maintained by the industry, whether he is well or ill, ,vorking or idle. It applies, further, to the management, and, to a considerable extent, to the sa1aried staff. Why should it not apply~ to the \vorkers also? Would it not, indeed, be a most important step in the recognition of industrial democracy that the workers' right to fllll maintenance out of the product of their industry should be securely established ?

THE WAGE-SYSTEM

The peril of this suggestioIl clearly lies in the fact that we are as yet very far off the establishment of National Guilds. To make unemployment and sickness a charge on the Guilds is OTle thing; to make them a charge on industry, as it is now constituted, is clearly quite another, and might easily involve the placing of the worker in a more complete subordination to capitalism than ever. If he who pays the piper calls the tune, there is evidently a danger that capitalism, in assuming the responsibility for the worker in sickness and unemployment, might also virtually assume ownership of the worker. In that case, we might have made a breach in the "rage-system; but we should have substituted for it a new form of chattel-slavery. There seem to me to be insuperable objections both to the complete assumption by the State of the provision for and against unemployment, and to an assumption of the same responsibility by capitalism. It is, however, evident that somehow this responsibility must be assumed, and that Labour is not in a position, and cannot fairly be asked, to assume it.

There seem to

be t,vo further alternatives which we have not yet considered. First, there is the' Ghent system' of unemployment insurance, by which the State subsidises Trade Unions to the extent of a proportion of their expenditure on unemployment benefit. This system already occupies a subordinate position in the scheme established under the Insurance Act, one of its defects lying in the State's i~sistence on a fairly large element of control in return for its subsidy. But there is a more serious defect; for it makes the amount of State assistance depend upon the amount spent by the Trade Unions on voluntary unemployment insurance. This both rules out those

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classes of workers who cannot afford to insure themselves at all, or adequately, at their own expense, and is, besides, unfair in that it places a large part of the cost of insurance upon the shoulders of the wage-earner. It is not, and cannot be made, a universal scheme of maintenance in times of unemployment, and, what is more important, it is wholly ineffective in furthering the decasualisation of labour. This should be one of the first objects for National Guildsmen; for casual labour is one of the greatest obstacles to blackleg-proof industrial organisation. Can we not, then, devise means of getting round the objections to the assumption by industry of the burden of unemployment? Clearly, if the burden is placed upon industry, those who control industry ,vill have every incentiv·e for making it as light as possible. This brings me to the remaining alternative, which is the control of maintenance benefits in sickness and unemployment by the Trade Unions, the cost being borne by a levy upon industr~y exacted under authority of an Act of Parliament. IJet an Act be passed setting up for each industry a statutory body representing employers and Trade Unions, with power to levy a rate upon all the firms in the industry in proportion to the numbers employed by them. IJet the payment of benefits from this fund be placed absolutely in the hands of the Trade Unions, and let Parliament have no control either of the amount of the levy or of its expenditure. This \vould be a clear step in the direction of industrial autonomy. This, however, would not solve the \vhole problem; for industry is not yet decasualised, and there are ll1any workers, and not a fe\v· emplo~yers, who cannot be assigned definitely to any industry. For these there

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would have to be a general body, on which, from the Labour side, the General Labour Unions would be strongly represented, and this body would levy a general rate on all employers employing such unallotted labour. To these bodies, and to a Central body co-ordinating them all, should also pass the control of the l.,abour Exchanges, and of any other industrial agencies set up by the State for dealing with questions of employment. 1 That there are perils in this scheme, as there are perils in all forms of co-operation between employers and Trade Unions, cannot be denied. But, under capitalism, we are, perforce, driven to choose between evils. We have the choice between bureaucratic State control and a limited co-operation with the employers for particular purposes, and it seems natural that advocates of National Guilds should prefer the second alternative to the first. Those who dwell upon the danger seem to hold that the effect of co-operation with the elnployers will inevitably be that Labour ,viII fall in love with capitalism. Is it not far more likely that a taste of control "rill produce a taste for control? National Guildsmen have never believed that the new Society can spring full grown from the old, like Athene from the head of Zeus. The new conditions must germinate \vithin the old, by the gradual assumption by Labour of functions which are now the preserves of the employers. Before Labour can control, it must learn how to control; and this it will do only by actual 1 I have stated this proposal dogmatically; uut I do not at all desire to be dogmatic about it. I throw it out as a suggestion, of which I anl myself far fronl certain, in the hope that it nlay at least serve to provoke discussion. For a further treatment of the point, I n1ay refer the reader to Guild Principll's ill Pea(e al/d Irar, by ~Ir. S. G. Hobson, with whom the proposal originated.

ABOLITION OF experience of control. For this experience, we must be prepared to risk much; and the risk in such a scheme as this does not seem to me to be great. The danger that is real in the preaching of security lies in schemes that would have the effect of tying the workers more closely to a particular employer. We have already experience of the effects of such security in the Royal Dockyards, and wherever the prospect of a pension ties the workman to his job. For this reason, there must be no attempt to deal with the problem of security in relation to the particular workshop. The workman must get security, not as an employee of such and such a factory, but as a member of the industry in which he works. This is the path of industrial autonomy; and, if this is followed, it will be a long step towards the abolition of the wage-system, though it will not by itself abolish that system. Ultimately, the complete control of employment and unemployment, and complete responsibility for the workers in sickness and in health, must pass to the Guilds; but the most \ve can hope for at present is a system in which the workers' right to security is recognised, and in which, without any sacrifice of freedom, he plays a controlling part in the administration of the means to that security. IV.

THE CONTROL OF PRODUCTION

The democratic government of the factory by those engaged in it would be the plainest sign of a change in industry. But it would not by itself destroy the wagesystem. The employer might hand the management of his factory over absolutely to the workers employed in it, or even to the Trade Union of their industry: he might salary' the Trade Union, where he now salaries I

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a manager. And, having done all this, he might conceivably ~ontinue much where he is to-day-he might go on buying and selling comtllodities or stocks and shares, and he might still draw fronl the community his toll of rent, interest and profits. Having won the control of the factory, the workers would only have democratised the management; they \vould not have overthrown the wage-system, or socialised industry itself. Yet again, therefore, in writing of a particular part of our policy, I have to la:y stress upon its essential incompleteness when it is viewed in isolation from the rest. Having done this, I can safely go on to point out wherein it is of fundamental importance, without fear of being supposed to regard the part as greater than the whole. The control of production is important both as an end and as a means. It is an essential part of that system of industrial self-government which I desire to see established, and it is an essential means to the establishment of that self-government.

There is no need to waste words in showing that the control of production is a part of the end; for that follows naturally, and inevitably, from the whole idea of industrial freedom upon which the Guild system rests. The idee maitresse of National Guilds is industrial self-government, and, clearly, that idea must find a prhnary expression in the democratic control of the productive process. Control of the factory by the workers employed in it is the corner-stone of the whole edifice of National Guilds. So important a part of the end is very naturally also not the least important of the means. National Guilds become realisable in proportion as the producers,

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through their democratic organisations, fit themselves to replace the capitalist or the bureaucrat, and do actually replace him-in proportion as they become capable of controlling that which he now controls, and do actually control it. Now, capitalists to-day enjoy rent, interest and profits by virtue of their control over two spheres of industrial activity, production and exchange. The former, which is the control of the productive processes, is the subject of this section; the latter, which is the control of the ra,v material and the finished product, will be dealt with in the next section of this chapter. In both spheres, capitalist control is largely exercised through others. These others are the management, sometimes pure salary-earners, sometimes also profitsharers on commission, or share-holders in the business. At present, these managers, of all grades from foremen up to the great managing directors of huge conlbines, are the servants of the capitalist class, \\Tho do their bidding, and maintain in their interest the autocratic control of industry. The industrial organisation of Labour is primarily a workshop organisation, deriving its strength from the monopoly of labour whicll it is able to establish in the workshop. In proportion as the worksh6p life of Trade Unionism is vigorous, Trade Unionism itself is strong. This fact has many morals with regard to the internal organisation of the Trade Unions; but these I have no space to point out now. What I desire to make plain at the moment that, since it is in the workshops that Trade Unionism is strong, it is in the \\Torkshops that Labour must begin its great offensive. And, in this sphere, the problem for Laboul is that of detaching the salariat from its dependence

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on capitalism, and attaching it as an ally to Trade Unionism. National Guildsmen have often pointed out how this process can begin-by the strengthening of Trade Union organisation in the ",'orkshop, by a closer and closer relating of Trade Union machinery to the organised life of the workshop, and by the gradual \vinning over from capitalism of the grades of supervision and management, beginning with the wresting by Labour from its enemies of the right to choose and control foremen and superiors in every industry. This progressive invasion of capitalist autocracy in the workshops, the factory, and the mine has long been placed in the forefront of the propaganda of National Guilds. It is sometimes objected to it by Collectivists and otllers that it does nothing to strike at the basis of rent, interest and profits, and, indeed, that this is a fundamental weakness of the whole immediate policy of National Guildsmen. I t is this argument which I desire to answer. A class that becomes atrophied is doomed to decay. The power of any class in any stage of human society rests ultimately upon the performance of functions. These functions may be socially useful or anti-social: an anti-social function may be just as good an instrument of survival as a social function. But as soon as a class is left without functions, the decay of its power and prestige can be only a matter of time. It was the deprivation of the noblesse of France of all social functions that made possible the overthrow of the ancien regime; and we, in our day and generation, shall succeed in overthrowing industrial capitalism only if we first make it socially functionless. This means that, before capitalism can be over-

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thrown, there must be wrested from it both its control of production and its control of exchange. This done, the abolition of its claim to rent, interest and profits will follo\v as a matter of course. The obvious striking point for labour to-day is the workshop. The assumption by the Trade Unions of workshop control would not destroy rent, interest and profits, but it would be a shrewd blow struck at the roots from whieh they spring. This is its fundamental import for Labour at the present time. The method by which the Trade Unions arc to assume control of the workshop and the productive processes are matters of keen debate among National Guildsmen; but the foregoing principles can hardly be called in question. Let us try to see now what follows from them in the way of next steps.' The first question that arises is whether, at any stage, Labour ought to assume any form of joint control with capitalism over the workshop, or any joint responsibility for its conduct. Joint control in any real sense is clearly impossible. Labour cannot be expected, with the wage-system practically unimpaired, to become responsible for the carrying on of capitalist industry. Labour is the aggressor in its strife with capitalism, and aims at the complete overthrow and supersession of capitalism. It cannot, therefore, in any real sense, become responsible for a system which it desires to end. But there is, I think, a sense in which a transition period of divided control 'Nith capitalism is inevitable. Let us take the analogy of a subject race-India, let 11S say-that seeks to achieve self-go,rernment and emancipate itself from its conquerors, but has no immediate hope of complete independence, and might I

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have serious difficulty in governing itself if it had such hope. The position of India in relation to Great Britain offers, indeed, many fruitful analogies to the position of Labour in relation to capitalism. The Indian is driven to seek emancipation through a gradual extension of his share in the functions of government. Moreover, he is driven, in the early stages of the movement towards self-government, to assume a measure of joint control over Government. The Indian Legislative Councils to-day represent a balance between official and non-official elements; they are a sort of joint committee in which the governors and the governed meet for consultation, and in which the governed have an opportunity of criticising their governors. As some schools of Indian Nationalists have freely pointed out, this method has its dangers, and many Nationalists who have entered the Councils as critics, have been more or less completely absorbed by the governmental machine. But there are few, save catastrophic revolutionists, who doubt that the India Councils Act of 1909, and similar reform measures, do tend in the direction of self-government. The Nationalist movement, by this measure of participation, does not sacrifice its power, its independence, or its rights of agitation and criticism. I believe that there must be a somewhat similar stage in the evolution of industrial self-government, and that Labour must pass through the stage of joint machinery for the control of production before it can assume complete control. The question is whether, in assuming partial control, Labour runs the risk of sacrificing its independence, and so blocking the way to a further anvance. Jur judgment upon this question depends finally

ABOLITION OF

upon our judgment of the Trade Union movement and of human nature. Do \ve, or do we not, believe that the Trade Union movement has so little capacity for idealism and self-government, or that human nature is so easily satisfied and so gnllible that the exercise of a little power will be enough to still unrest and smother discontent? I do not. Individuals may, and \vill, fall by the wayside, and be lost to the mO\Tement; but the movement itself will go on, gathering in appetite and swallow as it feeds. A taste of control ,viII engender a taste for control. But, as I have said, the assumption of ne\v functions by Trade Unionism will not only develop new desires and capacities among Trade Unionists-it ,viII also place a new strain upon the Trade Union movement. New men will have to be found, and new machinery will have to be devised. I believe that one method of

search will serve to find both.

We must make the

works the unit of Trade Union organisation, and afford to the Trade Unionist in the works his training in government. From Trade Union control in the workshop, backed by a strong natural organisation of Trade Unionism, will follow an extension of Trade Unionism over the management. The capitalist will be gradually ousted from his dictatorship in the control of production, and with the atrophy of one of his two primary functions will go a shifting in the balance of economic power and a weakening of the wage-system. We must now turn to the other primary function of capitalism-the control of the product.

THE

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THE CONTROL OF THE PRODUCT

I come now to what is, I confess, by far the most difficult of the tasks which Labour must accomplish if a free Society is to replace the wage-system. I twill not be easy for Labour to secure control of production; but it will be far more difficult for it to secure control of the product. Capitalism has two primary functions-the control of the processes of production and the control of exchange. The first is exercised by its control of the \vorkshop. This brings it into a direct and constant contact with the worker, and we have seen that the main object of Labour at present should be to oust the capitalist from this sphere of control by the use of its industrial power. This, however, as we sa\v, might be accomplished without the destruction of capitalism} and with only a bare breach in the wage-system itself. For, if capitalism retained its control of the product, it could still draw its toll of rent, interest and profits. The worker would have a freer workshop life; but even the organisation of the workshop would remain subordinate to the economic requirements of capitalism. Capitalist control of the product has three principal aspects. It is expressed in the financial system by which the great investors and syndicates regulate the fio,v of capital; in the control of raw materialsbuying; and in the control of the finished productselling. Investing, buying and selling, even more than producing, does capitalism lay waste Society. 1'his fact, I take it, is in the minds of National Guildsmen' when they say that "economic power precedes and dominates industrial, no less than political, power." Our problem, then, is to accomplish a demo~ I

C.S.G.

ABOLITION OF cratisation and Guildisation of investment, purchase and sale, as well as of production. We are, perhaps, too apt to think of (capitalism' and 'the enlployer' as synonymous, and upon this mistake to build erroneous conclusions. III fact, the individuals whom we lump together as the ( capitalists,' or the 'employing class,' fall into at least three distinct groups, though, of course, these groups are closely connected, and it is often impossible to say to which of them a particular individual should be assigned. First, there are the great capitalists, or owners of money power. Sometinles these capitalists confine their operations to a single industry, sometimes their operations extend over many industries, sometimes the}7 are pure financiers, whose relation to industry is indirect, sometimes they are merchants, whose whole business is buying and selling. Secondly, there are the smaller employers, capitalists too, but not powers in the financial sphere. These men are mainly producers, or smaller merchants, managing, as a rule, their own businesses, and striving to extract a profit for themselves. Thirdly, there are managing directors, associated with big businesses, industrial, commercial or financial, but not themselves owning any great share in the capital which they manipulate. The economic world is increasingly dominated by the first of these classes. The financier, with capital to invest, is the supreme power behind the capitalist throne. In industry, where large-scale production is the rule, the great industrialist increasingly domiIlates the smaller employer: where small-scale production continues, as in the woollen industry, the merchant is

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supreme, and constantly subordinates the interests of the producing employers to his own. We often proclaim that the State i5 a capitalist State. It is, in fact, a ( big business' State, dominated by the capitalists of the first group, the financiers and the great industrialists. The big business has not, as Marx thought it would, crushed out the small; but more and more it dominates and controls it. Our own is not the first epoch in which Society has followed this course of evolution. The breakdown of the Mediae\ral Guilds was mainly due to the rise of a merchant class possessed of capital. This class received into itself, and into -alliance with itself, the greater producing employers: the smaller employers it ground do\vn and overwhelmed. It did not necessarily destroy or absorb them; but it turned theln from mastercraftsmen into dependent producers. Labour, then, in seeking to destroy the capitalist control of production, has to deal with the first group of capitalists, the financiers and the great lords of industry. These are not, from our point of view, two groups, but one group, though they have many external differences which lead to friction among themselves. It is a sign of the times that Lord Rhondda, not content with coal, or even coal and iron, should be acquiring ( interests' in the most various types of enterprise. In seeking to control production, the method for Labour is clear. By the development of Trade Union organisation it can look to the \vinning of control in the workshop and the works. But what is to be its method of winning control over the product-over investment, buying and selling ? Some will answer simply, (The State.' But, every

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day, the State is passing more completely under the control of those very persons whose power we are seeking to destroy. The State may, on occasion, be ruthless in its dealings with the mere employer; it is not ruthless in dealing with the great industrial and financial potentates. For to these potentates our rulers owe their rule; and to-day these potentates are themselves, in many cases, our rulers. During the war, the State has immensely increased its control over industry. It has controlled the employer, particularly the small employer: it has become a merchant, while safeguarding the profits of merchants. Some Guildsmen welcome these developments of State control. Trade Unionism, they hold, cannot hope to control buying and selling by means of its industrial power: we must, therefore, look to the State to assume the rdle of banker, financier and merchant, while Labour is developing its control of production. This clearly means nothing less than State Capitalism, the concentration of the functions of investment, purchase of raw materials, and, to some extent, sale of products in the hands of a State dominated by the profiteering interest. What hope has Labour that it will be able, if this comes about, to secure the abolition of the wage-system by securing democratic control of the product ? On the other hand, if we reject this line of development, what is our alternative? There are Guildsmen who seem to think that, if only Labour can get control of production, all other things will swiftly and automatically be added unto it. There are two sufficient reasons why this is not the case. First, as economic power now dominates industrial

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power among the employers themselves, it might continue to dominate industrial power, even if this were transferred to Labour. I say it might,' for reasons which will appear later. Secondly, we cannot ensure the downfall of capitalism except by rendering it socially functionless. This we can only do by robbing it of its control of exchange, as well as of its control of production. We must, then, if we are to overthrow the wagesystem, find means of striking directly at the capitalist control of exchange, and of securing for Labour a control of the product. I think the course is clear, though tortuous. The action of the proletariat striving for emancipation assumes three main forms. Of these, two-industrial action and political action-are evolutionary in character; the third, insurrection or the General Strike, is catastrophic. Let tIS examine the function of these three in Labour's advance towards control of the product. Industrial action, as we have seen, will result in an increased control over production. This, however, will not by itself end the wage-system, or destroy capitalism's control of the product. At the sanle time, it will undoubtedly cause a breach in the system, and that breach cannot be entirely confined to the workshop and the works. The final control of the product will still, no doubt, rest with the big capitalists; but Labour \vill establish at least a measure of control over purchase and sale, though not over investment. Pressed by Labour from one side and by finance on the other, the ordinary employer \vil1 yield something to each, and Labour will secure, by industrial action, a certain limited measure of contra] over the product. I

ABOLITION OF Industrial organisation and action will have the further effect of stimulating and vitalising political action. The character and the effect of political action are inevitably determined and conditioned by the economic strength of the actors, and industrial strength is, in this relation, a very important element in economic strength. As, then, Labour advances in industrial power, it ,viII be possible for it to use the State for the purpose of depriving capitalism of its second economic function-the control of exchange.' Such political action by Labour is likely to be most effective in the sphere of finance and investment, rather than in buying and selling of indllstrial products. By taxation, and by the control of banking, and of llome and foreign investments, the State ,viII be able to strike at the economic power of capitalisnl. It may be held by many Guildsmen that this is mere self-delusion, and that political po\ver cannot, even with industrial power behind it, be used for the destruction of economic power. They may be right; but I do not thinl{ that their case is proved. Even if the State only assumes the control of exchange in the interests of capitalism, it will run a serious risk of leaving the capitalist classes without economic function. It is my contention that without economic function, social or anti-social, they cannot long sustain their economic power. Let us suppose for a moment that the J eremiahs are right in denying the possibility of destroying the economic power of capitalism by any combination of industrial and political action. There remains the weapon of catastrophic action, envisaged generally in the shape of the General Strike. We will imagine the masses endowed with dominant industrial power, con-

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trolling production through a blackleg-proof Trade Union organisation, possibly holding political power as \vell, but unable by any constitutional means at their disposal to shake off the economic power of capitalism. Surel)T, under such circumstances, the remedy of the catastrophic General Strike could not fail; for there is one po\ver \vhich precedes all others, and that is manpower, the organised determination of human \vills. The General Strike, then, or its equivalent, may be the last stage of the march of Society towards industrial freedom. But clearly catastrophic action can only be based upon long preparation and upon actual achievement of an evolutionary character. The more we are inclined to foresee catastrophic action as the last stage of the coming social revolution, the more prepared must we be for the evolutionary steps which alone can pave the way for the great catastrophe. It ma)T be true that the wage-system can be destroyed only by a frontal attack upon the economic power of capitalism in the·spheres of commerce and finance; but it is no less clear that. the way to such an attack lies

over the front line of Capitalism-the control of production. \Ve come back, therefore, to the view that for the moment Labour's task is to concentrate on industrial action and organisation. Standing alone, this statement may be misleading. Since the only method for Iotabour is that of making Capitalism socially functionless, it must aim, wherever possible, in de5troying or taking over the functions of capitalism. Investment, the final seat of capitalist authority, it cannot effectively touch till the l~st stages are reached; but it must and should, as its basic industrial power increases, stretch out its hands to control, as far as it can, both purchase and sale. Before

ABOLITION OF it can attack the capitalist as financier, it will have to attack him not only as producer, but also as merchant. This point needs further development. VI. PURCHASE, SALE AND INVESTMENT

The producing employer is necessarily not only a producer, but also to some extent a bu),'er and seller. He has to buy his raw materials, and he has to market his wares. His functions ill this respect differ widely from industry to industry, and from indi,ridual to individual. In many cases, the great prOdtlCer assures his supply of material by extending his control over basic and subsidiary industries other than that in which he is directly engaged. On the other hand, many producing employers are virtually no more than tributaries of the big merchants, or of the big producers, to whom practically the whole of their wares are consigned, or fronl whom they draw their materials. The rising po,ver of labour is fundamentally a workshop power, and it is in the workshop that Labour will first acquire control. But workshop control, or at least works control, cannot be exercised without intervention in buying and selling. A works could not continue to produce for long if a state of war raged between one party exclusively in control of its productive departments, and another in exclusi\Te control of its office. If, then, I~abour is to exercise works control, it will be driven to take into consideration and under control purchase and sale. Clearly, this problem assumed different forms according to the nature of the works concerned. If the business is one in which the producing capitalist is, in fact, independent, and has a large measure of control

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8S

over purchase and sale, Labour will find itself up against the whole force of Capitalism at its strongest point. If, on the other hand, the works is one in which the employer is a mere dependent on the merchant or the great industrialist, one of two things will happen. Either the dependent employer will be pushed out altogether, and the big capitalists will assume direct control, or else the dependent employer may be forced into the ranks of Labour. The same considerations apply to the smaller employer, who, though not actually dependent, is po~ntially so, because he has not the force to stand up to the big business, as soon as it desires to engulf him. The small employer is usually his own manager, and, as such, is performing, well or ill, a useful industrial function. He has, therefore, as a manager, a legitimate place in the economy of National Guilds, and the natural course would be for Trade Unionism to absorb him along with the dependent salariat. Unfortunately, he is, in many cases, a small hereditary capitalist, and a bad manager who would not be a desirable adjunct

to Labour's forces. The probability is that, as Labour reaches the stage of works control, the class of small employers will split into three. Some, including many of the best, will be retained by the big capitalists as their high salariat; some will be driven out; and some will come over to Labour as elected managers, subject to Trade Union control. In any case, whether the employer originally confronted be large or small, dependent or independent, Labour will sooner or later find itself confronted with (big business.' It will have nominal control of the workshops, and, in some cases, of the works as well ; but it will find itself, as the smaller employers are

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finding themselves to-day, still subject to the dominion of the big industrialists and merchants, who control the raw materials of industry, and the disposal of the finished product. We saw in the last article the three weapons, industrial, political and catastrophic, which Labour can use, and their general application to the ending of wageslavery. I want now to look more closely at the possible uses of the evolutionary means during the period of transition. Can Labour really use its industrial power to secure not ellly control of production, but also control of the product? Just as, in the workshop, I believe that in some cases a share in control without sacrifice of independence will have to be assumed before complete control can be won, so I believe that complete control of the workshop and the works will make possible and involve a share in the control of purchase and sale. The point of doubt seems to me to be not whether such control will be, or ought to be, assumed, but what form it will, or ought to, take. The danger is that of profit-sharing, a danger present in all schemes of (joint control). whether in workshop or business. It is the fear of profit-sharing establishing a common solidarity between Labour and Capitalism that leads some National Guildsmen to oppose, at all stages, all forms of ( joint control.' I agree ,vith them concerning the dangers of profit-sharing at any stage; but I cannot £ee how this ought to lead to opposition to all control-sharing. Sooner or later, the capitalists will tryon' profit-sharing, when they find that they can no longer resist the I..,abour demand for control. Labour must take the control and reject the profit-sharing, and must be prepared to take a limited control if it I

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cannot yet secure complete control. There is no essential connection between control-sharing and profitsharing. We come next to the State? What ought to be our attitude, as National Guildsmen, towards the assumption by the State of economic control? I am speaking now not of State control of production, which I deal with in a later chapter, nor of State control of finance, which I shall deal \vith later, but of State control of purchase and sale. During the war, the State has been the greatest merchant. It has bought and sold on a huge scale, and its operations have included every stage of the commodity from the ra\v material to the finished article. If it has been very tender to the merchants and the industrialists where profits are concerned, it has certainly usurped many of their functions, and reduced many an industrialist temporarily to the position of a mere manager. Some people hold strongly that this tendency ought to be encouraged and perpetuated, and that as the Trade Unions assume from below the control of production, the State should assume from above the control of the product, until ultimately the two meet, and the employer is eliminated or, rather, ground to powder between the upper and the nether millstone. I cannot quite take this view, because I regard the State of to-day as so clearly the alter ego of the big capitalists. In defining the Guildsman's attitude to nationalisation, I take the vie,,' that a change from one form of Capitalism to another is not in itself the Guildsman's concern, though he is concerned indirectly in the effects of the change on Capitalism. 1 I there point out the 1 See

ChI VII.

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advantages, from a Guild standpoint, of unified management, and of the greater responsibility of the State. These arguments, I think, hold, but hold less strongly, when we are speaking of the State, not as producer, but as merchant. For clearly, in this case, there is not the same direct advantage to the workers in confronting a unified management as in the industrial field. If, however} my forecast of the steps towards control is correct, there ,viII be a time \vhen the advantage will count. If it is true that, as Labour wins control over production, it will find its control thwarted, because it will still be confronted with Capitalism in possession of the control of the product, so that the controller of the product will come to be the next object of Labour's assault, then it follows that the arguments which we apply to State control of production can be applied at a later stage to State control of the product. In neither case will the fact that the State assumes control do anything to end Capitalism: in neither case should it deter Labour from making, with all its force, the demand for control-of the product, as \vell as of production. National Guildsmen are, then, in much the same neutral position towards State control of buying and selling as towards nationalisation of production. We are free to advocate or to oppose it in any case, according as the particular effects seem likel)T to be good or bad from our point of view. In any case, we shall agree that State control \\Till not end Capitalism, and is not, in the long run, compatible with National Guilds. Of this, however, there is more to be said. Under a system of National Guilds, how much control over the product would Guildsmen demand,

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and ho,v much would they place within the province of a democratised State? That is the last question I shall ask in this chapter; but I cannot answer it until I have dealt more fully with another pointthe question of investment. It is a commonplace that, of the product of industry, some is consumed and some saved. Wages being of necessity mostly consumed, the main source of saving is profits. Saved profits form the fund out of which capital is replenished by investment. The proportion of the product consumed and saved, apart from the reserve funds of companies, is determined by the individual choice of the recipients of profits. Now, if Labour were to succeed in making an industry unprofitable to the capitalist by raising wages through the industrial power of a blackleg-proof organisation, capital would not leave the industry, because it could not; but new capital would not flow in. New capital, however, is essential to the conduct of an industry. Either, then, Labour cannot get at profits through its industrial power, while the existing system continues, or Labour must find a new source for the supply of capital. This, under the wage-system, it cannot do. Industrial action alone cannot destroy profits, or even lower them, unless it can overthrow the whole capitalist system. This, we have seen, cannot be done purely by industrial po,ver. Is political action likely to be more successful? I do not think so. The assumption of the financial functions of Capitalism by the State, even in the interests of the capitalist classes, would, indeed, do more than anything else to atrophy the capitalists; but for that very reason it can happen only through an egregious capitalist blunder. I should welcome the

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nationalisation of banking and finance; but I do not expect them to llappen. We come back, then, here again, to the view that apart from capitalist blunders, a catastrophe will be necessary to end the wage-system. Only the manpower of an awakened people can defeat the economic power of a clever Capitalism. If, indeed, the great capitalists were to blunder by adopting complete State control in their own interests, and so allowing their own class to be atrophied, catastrophe might be avoided, and triumph would certainly be easier. We cannot, however, afford to count on capitalist blunders, even if we think them possible. The idle rich class is not dangerous: the busy rich class emphatically is. VII. AFTER WAGERY It is one thing to prescribe a method, and another to define an ideal. We have seen that, in order to end the wage-system, Labour must assume control not only of production, but also of the product. We have endeavoured to analyse the wage-system into its components, and to devise means for its dissoltltion. We have no\v to ask what, if we succeeded, would be the claims of National Guilds to control? Would they claim control both of production and of the product, and, if so, would their claim be an exclusive claim? It is clear" I think, that the claim would be to both forms of control; but that, in one case at least, it would not be exclusive. The control of the product is the stronghold of Capitalism, because upon it profiteering mainly depends. The whole conception of profiteering being alien to National Guilds, what measure of control over the product should -the Guilds demand?

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We can, again, conveniently divide our answer under the three heads of purchase, sale and investment. Ho\v far would the Guilds claim control of raw material? How far would they claim control of the finished article? And how far would they claim control of the flow of capital? In all these cases, I think their control would be shared ~n varying measure with other bodies, and principally \vith the State. Control of ra'w materials may mean much or little. It may mean the procuring by various methods of supplies from abroad; it may mean the securing of a controlling interest in another home industry producing the raw materials required; or it may mean merely the purchase of raw material from an independent body. Two of these seem to me to be natural and inevitable Guild functions, while the second would only arise in the form of close relations and agreements between interdependent Guilds. The purchase of raw materials from abroad might, indeed, in not a few cases, be centralised in the hands of all the Guilds jointly; but that does not make it any the less a Guild matter. The disposal of the finished product offers more difficulty, since upon this the profits of the capitalist are based. In this connection, we have to answer two questions. First, would the Guilds market their own products; and, secondly, what \vould become of the payment made for those products? The second point may be taken first. We pave seen that the whole idea of production for profit is alien to the system of National Guilds. The Guilds, then, will clearly not sell for the profit of their members. The income of the Guild member will not be determined by the amount which he is able to extract from the

ABOLITION OF consumer of his product. This being so, one or both of two things must happen. Eitner the price of products n1ust be regulated by some authority external to the particular Guild that is producing or selling them, or there must be a system of levy or taxation on Guild incomes which will skim off any surplus that might otherwise take the form of profit. I shall deal vvith this question more fully elsewhere: here I desire only to emphasise the fact that a Guild conducting sale will not be a Guild extracting profit. If the question of profit is satisfactorily eliminated, it is surely evident that sale is a proper Guild function, to be conducted either through a distributive or merchant Guild or Guilds, or through the producing Guilds themselves. Investment is the hardest problem. At present, as we have seen, investment is left to find its own level by means of the investor's sagacity in picking out the most profitable enterprises. This process is accompanied by colossal waste and fraud, and has nothing to recommend it, except to the speculator and the company promoter. lJnder National Guilds, investment, or the determination of the flow of Capital, would obviously be a matter for communal decision, since every penny saved is so much future wealth, instead of so much immediate consumption for the community. It is, in fact, the enlploylnent of labour in making capital instead of perishable commodities. It reduces the immediate divisible total of the national income, and must, therefore, be communally determined. The particular Guild desiring ne\v capital or the placing of a heavy sum to reserve will, no doubt, have great weight in placing its recommendations before the community; but the ultimate decision cannot rest with the individual

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Guild. The State, as the representative of the consumers, must have in it a voice equal to that of all the producers gathered in the Guilds Congress. \Ve see, then, that in the sphere of control over the product, though the National Guildsman cannot so limit his claims in the period of transition, they must, in the maturity of the system, be a division of power between the Guilds and the State. \Ve have now to glance briefly at the other side of the picture-the control of production. Here it must be evident that the normal conduct of, and responsibility for, industry, ,viII be absolutely in the hands of the Guilds, and that neither the State, nor any outside body, should have any say in nominating Guild officers or managers. State intervention in this sphere should, I think, be limited to making representations on the joint body representing it, together with the Guilds Congress, and to playing a part in taking decisions on that body. The exact po\ver of intervention in the affairs of a particular Guild that ought to be possessed by the Guilds Congress is more difficult

to determine, and probably should not be determined in advance. There is an obvious danger in making our system too rigid; and I, at least, feel that not the least important elements in the Guild system will be a vigorous and largely autonomons local life, and the preservation by federal systems of the individuality of the smaller industrial groups, and of groups within the larger industries. We are now in a position to sum up our argument. Our immediate policy must always be determined by the end which \ve have in view; but the immediate measures which \ve advocate cannot be, in all cases, themselves a part of the end. \Ve may have to secure C.S.G.

N

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in the transitional period forms of control which it will be our business to discard at a later stage. Thus, we may have in certain cases to accept now joint action (not partnership) with the employers; but our aim is none the less the total elimination of the employers. Similarly, we may have to advocate in the transitional period, forms of control O\Ter the product which the workers will have, at a later stage, to hand over to the State. If, on the one hand, we have to beware of becoming reformists and forgetting 01.1r ideal altogether, we have to beware also of becoming doctrinaires to whom nothing short of the whole is worth having, and to whom any course is sufficiently condemned if it is clear that it will ha\Te to be repudiated at a later stage. We must, at all hazards, seek economic power in the present, because only by our economic power can we hope to establish our ideal.

CHAPTER VII STATE OWNERSHIP AND CONTROL

I "MUNICIPAL debt is only municipal capital." How easily, in their anxiety to find an answer to Moderates grousing at the growth of municipal indebtedness, Socialists swallowed that plausible debating answer of Mr. Shaw's. A municipality desires to own its tramways: it therefore buys out the existing company. It then owns its trams; but in acquiring them it has run up a debt. But, we are told, just as the indebtedness of any company is its capital, so municipal debt is municipal capital. True; and, by a parity of reason . ing, Municipal Socialism is Municipal Capitalism, and nothing else. Just as the company pays interest to its shareholders, the municipality continues to pay interest to private capitalists. It merely guarantees their dividends, which were before more or less precarious. The same argument applies to nationalisation by purchase. It results, not in Socialism, but in a guaranteed State Capitalism, which is its direct opposite. National debt may be in a sense national capital: it is in effect the capital of the few to whom interest upon it is paid. Of course, the Collectivist will explain that he uses the argument that ' debt is capital' only to dish the I

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Moderates.' He knows well, he will tell you, that the debt incurred in taking over industries must be wiped out subsequently, in order that the 1,vhole product may go to the community. But, if he is pressed, as Mr. Belloc and others have pressed him, it soon becomes clear that the process of expropriation by sinking fund, annuity, or even such taxation as he can plausibl~l suggest, is going to be one, not of decades, but of centuries. \Villy nilly, the tame Collectivist, Liberal, Labour or Fabian-SocialIst, becomes a mere nationaliser and ceases to be a socialiser. It is, indeed, a 'Fabian '-or should I say' a , damned' ?-pity. as \vell as a clear indication of the tendencies of British Socialist thought, that \ve have of late years ceased to distinguish between nationalisation and socialisation, and even dropped the latter word altogether. ;For there are clearly two directions in which the State may extend its power over industry. It may own more; and it may manage more. Nationalisation, in the true sense of the word as it is used in common by capitalist and by Labour advocates, means national management; socialisation, whether in the mouth of a Social-Democrat or of a hireling of the Anti-Socialist Union, means national ownership. Now, is it not clear that, in its economic aspect, Socialism means the absorption of surplus value by the community as a whole? Therefore Socialism implies national ownership. Surplus value can only be communised if the ownership of the land and the means of production is in the hands of the community. National management, on the other hand, is quite a different story. Provided the communal absorption of surplus value is secured, as it would be under the

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Guild system, ~-e are free to devise what scheme we will for the control of the nation's industry. It has been the aim of National Guildsmen to show that national management is not a satisfactory scheme. The Collectivist, as we have seen, admits, when he is also in the wide sense a Socialist, that national management is by itself inadequate. He wishes to supplement it by national ownership. The National Gllildsman replies that national management is not inadequate but wrong. The control of actual production, he says, is the business of the producer, and not of the consumer. Only by giving the maker control over his own ,york can we satisfy the true principle of democracy; for self-government is no less applicable to industrial than to political affairs. It is not, however, my object to rehearse in this place the arguments in favour of Guild control. I desire to point out that there are these t\VO ways in which the State can extend its po\ver-over ownership and over management. And is it not clear at a glance that society is heading to-day straight for national management, and that it is not advancing at an~ything like the same speed in the direction of national ownership? \\Te nationalise, but we do not, save to an insignificant extent, socialise. Furthermore, even if \ve go on to socialise, \\Te couple national o\vnership\vith a system of controlling industry which National Guildsmen hold to be both Inorally and economically wrong. Even if, at the end of a thousand years or so, \ve succeed in freeing oursel 'les from the burden of interest which nationalisation lays upon us, we shall still be saddled with a bureaucratic control of industry that \vill leave us as far as ever from the true industrial democracy. If, after a voyage

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almost as lasting as that of tbe Flying Dutchman, we round in the end the Cape of State Capitalism, we shall only find ourselves on the other side in a Sargossa Sea of State Socialism, which will continue to repress all initiative, clog all endeavour, and deny all freedom to the workers. Yet the position is not so easy as it appears to those who bid us, on these grounds, oppose all nationalisation as the highroad to the Servile State. I desire in this chapter to confront the whole problem of nationalisation from the point of view of National Guilds. The advanced section of the Labour movement 111Ust decide what its attitude on this question is to be; for upon this depends many important questions of immediate policy. And we cannot afford, in contemplating the perfection of our final victory, to neglect the task of planning our own campaign, and of tr)Ting to foresee the plans of our adversaries. II

What, then, should be the attitude of Guildsmen towards nationalisation? Forming a discontented minority in the Socialist movenlcnt, they find themselves, if they belong to any of the Socialist societies, associating with others who make nationalisation the head and forefront of their programme. If they oppose the extension of national trading, th'cy are told that they are not Socialists, but Syndicalists, who have no business in a Socialist body. If they support nationalisation, but maintain that along with national ownership must go Guild control, their fellow-members make haste to inform them that there is, after all, no difference of principle, that they can all agree for the moment upon

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national ownership, and that the precise amount of control to be gipen to the workers can be determined later on. The Collectivist is full of sympathy for the idea behind the Guild system, provided that he need not in any way commit himself to the vital principle of industrial self-government. Guildsmen, therefore, find themselves in a dilemma. They are in favour of national ownership, but only on conditions. The difficulty is to define their attitude when nationalisation is offered them without conditions. There are several positions which they may take up; and I propose to examine each of these in turn. In the first place, they may agree with the authors of The Miners' Next Step, at least where the method of transition is concerned. They may simpl}' oppose nationalisatiol1 and rely wholly on industrial action. They may hold that the best way of securing control is to oust the capitalist by direct action. According to this plan, a series of strikes must be declared, and the victory of the workers in each of these must leave the capitalists poorer than before. The rate of profits must fall, and at the same time the workers must secure a continually greater share in the actual management of the industry, till at last the capitalists, finding business no longer profitable, clear out and leave the workers in undisputed possession. So far, this is pure Syndicalism; the Guild Socialist who adopts this attitude adds a rider. Then, and not till then, must the State assume the ownership of the means of production, while their control remains in the hands of the Trade Union. This view would be clearly the right one if the Unions could rely upon the capitalists to sit still and

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do nothing. But what, we must ask ourselves, would be in reality the capitalists' 'next step'? First, it is by no means clear that what is ordinarily called a , successful' strike causes the rate of profits to fall. Especially in a more or less monopolistic industry, the capitalist, as a rule, recovers from the public in enhanced prices as much as, if not more than, he is forced to concede as wages to the workers. Even if each strike, imbued with a new purpose, gives the Union a greater foothold in control, it will not, by this means alone, succeed in abolishing profits. "But," the advocates of pure industrialism will say, "even if this is so, the series of strikes for partial control will be followed by a successful strike for complete control, and the demand in this case will include the entire transference of profits to the workers. Or, rather, if strikes do not cause profits to fall, the workers will, long before, have coupled their demand for a greater share in control with one for a transference of the profits of the enterprise." This view ignores the capitalists' second step. Confronted with the risk of having their profits filched from them by the workers, the possessing classes will unload on the State. They will demand to be nationalised in order that their dividends may be guaranteed by the Government. In this case, the workers will suddenly find themselves striking not, as they had planned, against a body of private capitalists, but against the State. Their action will be none the worse for that; and, if their demands are refused, it is to be hoped that, under such conditions, they will strike all the more persistently; but, whatever they do, their plans will have to be remade-that is, if they are ont for control in coni unction with a democratic State.

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If they are Syndicalists, it ,vill make no difference to

theln against ,vhom they are striking-except that the State is a more dangerous enemy. Their aim being in that case the complete absorption of the surplu~ value created in their industry, they will presumably go on until that end is achieved. Guildsmen, on the other hand, believe in a partnership between the State and the Unions, and, being Socialists, stand for the communal absorption of surplus value. 1"'hey have no wish to set up fornls of collective profiteering in the various industries. 1"'hey ,vill desire to strike, not in order to cOlTIpel the State to yield up a property ,vhich is no longer profitable, but to secure control over production; and for this control they ,vill be prepared to pay, according to their ability, as it is nleasured by the productivity of their industry. To this aspect of the question ,ye shall return. What is relevant now is to point out that, if all this is granted, a part at least of the case we are criticising falls to the ground. The pure industrialist of this first type leav66 nationalisation out of account in his argument. It i~, not enough for him to say that he is opposed to nationalisation. It is of no use to be opposed to the enemy's plan of campaign, which, at no distant date, nationalisation may ,veIl become. 1"'hc skilful strategist thinks out ,vhat the enelny will do, and considers ho\v he can meet it. Our industrialist, then, must either defeat or accept nationalisation. But can he, holding the view that industrial power precedes political power, or can anyone, doubt that, if the capitalists \vant nationalisation, they ,vill get it? 1'he doctors might possibly succeed in resisting a proposal to establish a national medical service, because they are capitalists as \\:,cll as workers; but it is ridiculous to suppose that any class

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of manual workers could resist nationalisation if the State and the employers alike wanted it. N ationalisation is inevitable, not because it is the policy of the Labour Party, but because it is rapidly becolning sound capitalist economics. Let us be quite clear. The only industries in which the organisation of the workers is anything like complete enough for such a policy as The }v! iners' Next Step suggests are certain public utility services which are in the nature of natural monopolies. Let us confine our survey to these industries-say, to the mines and the railways. In both cases, is it not obvious that the first sign that such a policy was being consciously and successfully adopted would be the signal for nationalisation? And is it not equally clear that, for the present, a strike against nationalisation is unthinkable? Indeed, such a strike would be in itself an absurd paradox. It is not against nationalisation that the workers must strike, but for control. It is admitted, ho,vever, on all hands, that the workers are not ~Tet ready for complete control. Till they are ready, a strike against nationalisatiol1 would inevitably be a strike for the retention of private ownership in the hands of the present holders. I t would be a strike to save the capitalists from themselves, or at least from their alter ego, the State. Though such a strike might be represented by its advocates as an attempt to save the fatted calf of Capitalism from being carried off by the enemy, the situation is evidently too absurd to contemplate. Even if it were logically justifiable, which it is not, it would be a hopeless position to adopt. It is therefore futile to oppose or obstruct the nationalisation of such public utility services as the mines and the rail\vays. In other industries in which there l

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is not yet awhile any likelihood of nationalisation, it matters little whether Socialists propose or oppose nationalisation. There is, as we shall see, at least one case-banking-in which they ought actively to forward it. For the purposes of our pre~ent argument, it is enough to say that, where it seems likely, opposition is futile; where it seelns unlikely, advocacy is at present useless. The argument which we have brought to bear upon thorough-going opponents of nationalisation applies also to those who say that the time for nationalisation will COIne, but that the workers are not yet ripe for it. Of course, the workers are not ready for it, and that is precisely why it will come. Were the working class as a whole imbued with the idea of control and endowed \vith the power that idea gives, nationalisation would no longer serve the capitalists' ends. It would be the signal for the complete overthrow of Capitalism-State or private-and for the substitution of the Guildsystem. Nationalisation is coming now, and coming inevitably, because it is the capitalists' last card. When their dividends are no longer safe froln the direct action of the workers, they trust to the State to save them by nationalisation-at any rate, for the time. But until those who say that the workers are not ready for nationalisation explain how the workers, being admittedly unready and badly organised, are to defeat it, the argument I have used in criticisn1 of pure industrialism holds against then1 also. It is waste of breath, ink, and energy to oppose the inevitable. Let us, then, seek to discover what effect the nationalisation of mines and railways will have on the chances of Guild control.

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I ended the last section with a question. What will be the effect of nationalisation-State Capitalism, if you will-upon the prospects of Guild control i Will it make the path to the Guild easier or more difficult? In the attempt to answer this question, it is natural to appeal to the actual \vorking of those enterprises which are no\v run by States or Municipalities. What, in these cases, has been the effect of national ownership? When the general question of nationali~ation is at issue, advocates and opponents alike make this appeal. The State Socialist will tell us that the State is on the whole a better employer than the private capitalist, that in public emplo)Tment the worker enjoys preferential conditions and greater security of tenure, and that the pUblicity afforded by Parlialnentary control secures the remedy of any crying injustice. On the other hand, the opponent of Collectivism will point to the dangers and annoyances, petty and great, which bureaucracy entails; he will cite existing State services as showing the inevitable growth of bureatIcracy under a system of national management; he will point out that such (advantages' as the Government employee enjO)lS are more than balanced by losses of civil and industrial rights; and he will urge that the publicity secured through Parliament has been shown to be useless llnless the weapon of industrial action is behind it. Both sides \vill cite instances in support of their views with equal facility; but they will, as a rule, be different instances, dra\vn not necessarily from different public enterprises, but from different points in the working of tIle same services. Thus, the Collectivist assures us that the State is not

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a bad sweater, and that, in most cases, it pays Trade Union rates. Where this is not so, he can, as a rule, show that the workers are getting an equivalent in pensions or the like. Supernumerary men are indeed often underpaid; but, judged by the capitalist standard, the State is a fair employer to its established staff of workers. With more exceptions and in a less degree, the same may be said of the l\iunicipalities. They do not, from whatever cause, normally pay less than the Trade Union rates. The exceptions, of which everyone knows not a few, do not alter the rule. In the scale of capitalist employers, the State stands perhaps a little above the average. It may be true, further, that it occupies this position partly as a result of Parliamentary publicity and control. Men1bers of Parliament have an interested-in many cases even a disinterested--dislike of the \vorse form~ of sweated labour, or at least of being openly and publicly responsible for them. So far, therefore . as wages are concerned, Parliament may intervene, when a certain amount of publicity has been secured, to bring the condition of public employees up to the standard rates. Further than this they have no desire to go; they will try to be as 'good' as the average private employer, but they will do anything short of I05ing their seats rather than be any better. Where any question of discipline or management, in short, of control, is concerned, they are adamantine in defence of the bureaucratic omnipotence and all-wisdom of the permanent officials. The plausibility of all the argu.nzenta ad opificem in favour of national management rests on the same fallacy as the arguments for compulsory arbitration. Because the effect may be at first to screw up wages

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all round to the standard rate, it is argued that this proves the system right. It proves nothing of the sort: wages fixed by Parliament or by bodies depending on Parliament attain to the standard rates; but there they invariably stagnate. Every new demand, that cannot be shown to be the habitual practice of most employers or of all the best employers, is resisted to the death by the public authority, dominated as it is in every case by officialism, conservatism, and bureaucracy. If the Guildsman is asked to accept nationalisation on the ground that Parliament and the officials \vill be anxious to grant every reasonable demand, his answer is obvious and complete. For the purpose which they have in view, Parliamentary control is not only valueless, bu~ definitely obstructive. Turn now to the picture of national management as the Syndicalist paints it. Let us take as our example , democratic' France, the home of Syndicalism. Take three State enterprises-the schools, the Post Office and the State railway. The teachers have had their Trade Unions suppressed; a French Premier, nominally a Socialist, has defeated a railway strike by calling the railwaymen to the colours; the Post Office, as M. Beaubois has shown in his admirable pamphlet, La Crise Postale et les Monopoles d'Etat, is a hot-bed of bureaucracy, favouritism and inefficiency. The French worker knows well that the accompaniment of State ownership is administrative tyranny. Are we then to conclude that nationalisation is always bad from the Guildsman's point of view? If so, since we have decided that it is futile to oppose it, we are indeed in a bad way. What we have said, however, need not bear that construction. N ationalisatio~ is dangerous only in proportion as Trade Unionism is

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weak. Were French Trade Unionism strong, instead of weak, the public enterprises could not be conducted with the inefficiency and tyranny that characterise them now. The vice of the administration is limited by the virtue of the employees. State departments and municipalities, while on the whole they pay at least as good wages as the general run of employers, are, we admit, naturally inimical to any interference in management by the managed. Every extension of Trade Union activity is repressed by them as subversive of discipline, or, if they have been brought up to be philosophers as well as bureaucrats" as cases of rebellion by the worker against himself-for the citizens, they will tell you, are the State. Every obstacle will be put by administrators in the way of the extension of Guild control. Yet none the less the public and semi-public services are the soil in which the Guild idea is growing most fruitfully, and may be expected to grow. We have too long repeated the Marxian phrase that the emancipation of Labour must be the work of Labour without understanding it. The Syndicalists and the National Guildsmen are fundamentally right in regardIng the industrial consciousness of the workers as the pivot on which the whole social system swings. The fundamentally important thing about the various forms which the capitalist organisation of industry assumes is not whether they are harsh or gentle, whether they feed the workers well or ill, but whether they foster or destroy the spirit of liberty in men's hearts. Wherever, under the present system, we find growing up a revolt that is not merely blind anger or blind despair, wherever we find in revolt the constructive idea of industrial democracy, there is the social strue-

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ture best fitted to further the cause good men have at heart. Wherever there is no such spirit of construction, there, \vhatever the material position of the workers, no hope of the ending of Capitalism exists. This gives us a n1easnre of the new spirit which is not merely quantitative. Not where men are most angry or most rebellious, but where they realise most clearly' \vhat needs ending or mending and how it may be ended or mended, is the cause of Labour most hopeful. Only an idea can slay an idea: llntil the ,yorkers are animated ,vith the desire to be their o\\"n masters the}7 cannot supplant the idea that their class is born for wage-slavery. But is it not in public and semi-public services that the idea of control seems to be taking root? The Postal and Telegraph Clerks' Association had the honour of being the first Union to make a public and open demand for joint control-a proposal characteristically stigmatised by the dotards of the New StateS11'tan as fantastic. In the Post Office, as we shall see, the demand for control is, and has long been, a vital and practical question. A generation in advance of their time, the Postal ,yorkers are fighting, against odds, the battle of National Guilds. It is significant that the demand for control should have come so far in its most articulate form in such a public service as the Post Office. l\foreover, we have already noticed that the same demand has been made by the Postal workers of France. The second case in \vhich the question of control has of late years forced its way to the front is the railway service. The rail,vay workers, regarded until recently as among the most backward of Trade Unionists, have now practically assumed the lead among the' forward'

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section in the world of Labour. The railways of this country are not indeed nationalised, though they are now State controlled; but of late years there has been so much State interference \vith them that from the point of view that concerns us here they might as well have been so. What then has caused the Guild idea to take spontaneous form in these branches of industry rather than in those which are under distinctively private management? One main reason is not far to seek. Nothing tends so greatly to promote the idea of control as unified management. Where an industry is split up among a number of wholly or almo5t \vholly separate managements acting on different principles and with very little co-ordination, the twin demands for recognition and control cannot so easily be made as where a whole industry is gathered up under one supreme direction. For, in the first place, with divided management Trade Union activity tends to be concentrated on the attempt to bring the worse employers up to the level of those who are better. Trade Unionism remains wrapped up in the old attempt to maintain and improve the standard rate. Wages questions tend to hold the first place, though they do not, of course, monopolise the energies of the Union. But where questions of discipline or management arise, they are usually in this type of industry questions affecting a single management, and when they are settled, no demand arises for a uniform and recognised right of interference with the acts of all firms in the industry. The case remains isolated and unimportant: no ne\v principle is established. With a unified management, on the other hand, the accnmulating series of individual demands have all to do \vith the same authority, and are soon inductively C.S.G.

Q

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recognised as instances of a general principle, which at once becomes a general demand. Recognition of the Union is claimed; and recognition, once won, soon arrogates to itself wider and wider definitions. Sooner or later the Union gets a real foothold in the control of the industry, and a step has been taken in the direction of National Guilds. Secondly, the very bureaucracy which is characteristic of State departments, accompanying unified management, both irritates the workers and gives them an obvious target for their irritation. They readily come to see not only that something is the matter, but what the matter is and, sick and tired of official bungling, they claim to take the place of the bunglers. The natural impulse we all feel to push aside anyone whom we see doing badly \vhat we can do better comes to their aid; and their anger is transformed into a rational,

but none the less righteously angry, demand for joint

control of their industry. Is it not nationalised industry that best answers this description, and, if so, is not nationalised industry a good seeding-grollnd for the Guild idea?

IV , Trust-busting' is the favourite pastime of American' fake' reformers. In the United States, Government regulation of big business is the approved , progressive' alternative to ending the wage-system -as transparent a device of Capitalism -as the most flagrant pieces of Lloyd-Georgism that we in this COllntry have to endure. The futility of such attempts to play the Mrs. Partington has all along been appreciated by the revolutionary wing of American Socialism.

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D. Haywood and Frank Bohn, in their book, Industrial Socialism, declare with emphasis against the anti-trust campaigning of the politicians. They have seen that it is none of their business to decide between rival forms of capitalist organisation. They are out to end Capitalism, and not to adapt it. If, as the Syndicalists would have us believe, all nationalisation is simply and solely State Capitalism, it does not follow that it should be opposed. If the State is the alter ego of the employer, \vhat does it matter which of them rules the roast? If it is futile to oppose trusts, is it not equally futile to oppose nationalisation, which is only the trust in its most perfect form? Are not both stages, not indeed necessary, but in many cases convenient, in the passage from individual Capitalism to the system of workers' control over industry? For the State and the trust, cartel and combine clearly have this in common. Both involve a high degree of unified management; both incline to centralisation and bureaucracy; both, even when they pay fair rates of wages, tend to annoy their workers with galling restrictions and red tape. It is among the employees of the trusts in America that the revolutionary Unionism of the Industrial Workers of the 'Vorld has taken root; it is among the wage-slaves of the State and of the combines of Great Britain that National Guildsmen are destined to be made. What matters, then, is not so much whether an industry is State-run or not-that is for the present mainly a question of capitalist convenience-as whether a whole industry has come under a unified management. For it cannot be too often emphasised that the organisation of industry which the Guild system

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connotes is a national organisation, as the Trade Unionism out of which it mnst gro\v is a national Trade Unionism. Generally speaking, \ve may say that the battle for Guild control \viII be fought in the great industries, and above all in those in which the combination and concentration of capital are closest. If \ye leave State-run industries out of account, no one will for a moment dispute this statement; as soon as it is realised that State-run industry is only concentrated Capitalism to the nth power the case is equally clear there also. The State will be the leading antagonist of the Guilds; but it will also be, in many cases, their chief begetter-a sort of nledecin malgre lui of the malady it has itself created. It is no lingeri~g illusion about the benefits of State employment that should cause Guildsmen to refrain from joining hands with Tories and Whig advocates of laisser-faire in opposing nationalisation. Bill Haywood refuses to help the reformers in ~merica to destroy trusts, not because he loves trusts, but because Capitalism is destined to self-destruction, and through the trust lies the road to its ruin. Combination is the capitalists' last card bnt one; nationalisation will prove to be their last card of all. It is not for us to interfere with their method of playing their hands; let us rather trllmp the trick when the capitalists' ace has been played. \Ve must not, ho\vever, push the analogy bet,veen the State and the trust too far. There are certain differences betvveen them; but these, too, are far from inducing us to oppose the extension of State industry to~day. Suppose we had to choose whether a given industr)1 should be run by a trust or by the State. What, we should ask ourselves, would be the position

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of the workers in the t,vo cases? \Vages would probably be much the same under both systems; but there might be a tendency, if the management ,vere national, to assure a higher standard to the worst paid employees. Hours, too, would probably be much the same; but, if there was a difference, they would probably be shorter under the State. In status, especially in the consciousness of status, the government employee wou1d be likely to have a distinct advantage. But the consciousness of status is the beginning of ,visdom, and an essential prerequisite of the Guild idea. \Vhat then becomes of the familiar vie\v that nationalisation means the Servile State? We are all well acquainted ,vith the argument; and many of us are fully conscious of its force. Yet, if nationalisation has all the effects ,ve have been claiming for it, is not the whole theory of the Servile State utterly untrue? Not altogether, though it is at least half untrue. The broadest of all oppositions between rival schools of Socialist strategy is that between the evolutionist who holds that, bad as Capitalism is, if ,ve go on inlproving

it, it "vill some day turn into Socialism, and the revolutionist who maintains that Socialism ,vill come about when Capitalism has beconle so bad as to be absolutely intolerable. Good arguments are brought forward in support of both positions. The evolutionist ,viII say that the better off a man is the more likely he is to realise the injustice of his position, and to ask for still better conditions. He \vill point triunlphantly to the fact that it is among the better-paid \vorkers that Socialism and Trade Unionism alike nlake most headway; and he will urge that this conclusively proves his case. The revolutionist, on the other hand, will point to the success with which (benevolent' employers

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have managed to lull their workmen into apathy, to the growth of sedative movements like profit-sharing and copartnership, and to the effects of Australasian labour legislation, his knowledge of which, being based on out-of-date text-books, will stop short some years back, before the present period of unrest began. Each will seem to have a strong case, because each is in the main speaking the truth in what he asserts, but suppressing or failing to perceive other truths that are no less important. On the one hand, it is abundantly clear that high wages make men more, and not less, discontented. This is true generally, but more especially when high wages are the result of industrial action. In such a case the effect is immediate, and new demands almost invariably follow on the first favourable opportunity. When a rise is due to some external cause, such as legislation that is not the response to direct industrial pressure, the immediate effect may be a lull; but none the less the workers will be, in the long run, more inclined to make demands than before. The evolutionist is right in his view of the psychological effects of high wages. On the other hand, it is equally demonstrable that copartnership and all forms of coddling' by employers who are astute or benevolent, or more often both, do devitalise the workers who receive them, and make rebellion more difficult. The copartnership employee does not make a good Trade Unionist, nor does the t almshouse and pension' type of benevolent employment foster the spirit of independence. Here, then, the revolutionist is right in his psychological inductions. But is it not evident that these views are perfectly t

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compatible? Low wages, supplemented by benevolent and considerate management, may secure a fair standard of material comfort for the employee; but they are demoralising and degrading; they produce a spirit of subordination and acquiescence, in which the Guild idea cannot grow. They breed such stuff as Nietzsche's , Ultimate Men,' servile in word and thought and act. High wages, on the other hand, are themselves an incitement to demand higher; where they are combined with harsh or bureaucratic management, they are the forerunners and the creators of revolt. It is hypocritical, and even real but stupid, benevolence and not malignant opposition that Guildsmen have to fear. Some day, the State may learn to play the game of benevolence in a last effort to lull the workers again to sleep. But we may reasonably hope that the State will be so long in learning that lesson that the attempt will be made too late. For the State has one great disadvantage when it sets out to imitate the Levers and Cadburys of private capitalism. The benevolent' employer is working on a comparatively small scale: he makes full play with the idea that the business is a family, a home, an idea to which the employees' trade patriotism can cling. He makes, wherever he can, a sentimental appeal and calls for loyalty to the firm.' All this the State cannot easily imitate. For, first of all, State industry tends to fall into the hands of temperamental bureaucrats, and will continue to do so till the workers themselves assume control. But the bureaucrat is always likely to rub the average man up the wrong way. Herein lies the State's first handicap. Secondly, the State-run industry possesses a unified management, and the centralisation which this involves only gives the bureaucrats a bigger I

I

STATE O\VNERSHIP chance of making themselves unpleasant. On all accounts, therefore, though the State will probably try some day to play the benevolent employer, ic ",·ill probably fail in its attelnpt to send the workers to sleep. If it pays high wages, it will only rouse them to ask for more; if it tries the more underhand method of supplelnenting wages by conditional benefits, it \vill onl)! rouse the workers by the pin-pricks of bureaucratic t benevolence.' The nationalisation, therefore, which capitalists ,viII bring about in order to save their dividends, and reformers urge upon us in the interests of social peace, we may accept, at least in certain industries, because we believe that it will bring, not peace, but a sword. V Advocates of nationalisation admit that their policy is immediately practicable only in a fe\v cases. There is little chance that the State will as yet take over any save a very special class of industries. Broadly speaking, these ,viII be public services which naturally tend towards monopoly. But the possession of these characteristics ,viII not by itself be enough to cause nationalisat ion ; the additional impetus \vill come, at any rate in great industries, from the gro\vth in numbers and in consciousness of the Trade Unions. In these cases, the very strength with which the workers make their demands will hasten their transference to State employInent; where Trade Unionism is strong and intelligent, nationalisation will be inevitable. We can therefore say with confidence that in some cases national management will precede National Guilds. This, however, need apply onI), to industries

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which are in the nature of public services. \Vhile we may be confident that nationalisation of mines and railways will come before Guild control can be achieved, it does not follow that the same order will be observed in the textile industries, in engineering, or in the building industry. For the nationalisation of an essentially monopolistic public utility service, such as the railways, the trams, or even the mines, is one thing; but it is quite another to take over an industry which is not a public service, and of which the stoppage does not dislocate the national life to anything like the same extent. A strike of cotton operatives only indirectly affects the industry of the country; the effect of a national stoppage of miners or railwaymen is immediate and devastating. Only in industries of this latter type is the State, for some time to come, likely to step in with any complete system of nationalisation or control, except as a purely temporary war-time expedient. National management is inevitable, as a transitional stage, in the mines and on the railways, for two reasons which may seem contradictory: first, becanse there Trade Unionism is strong, or at least will soon be strong enough to frighten the employers into getting their profits guaranteed by the State; and secondly, because even there Trade Unionism is weak-too weak, that is, and too little self-conscious to assume full control. For even the most advanced Trade Unions have a long road to travel before they fit themselves for the control of industry. :Militant class-consciousness is still far enough from realisation; and class-consciousness itself is but the foundation on which a constructive idealism remains to be built. It is probable, therefore, that the most the railway-

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men or the miners will at first secure, when their indllstry comes to be nationalised, will be recognition together with an organised power of making representations to the bureallcrats who will still be in control. In the first instance, they can hardly hope to do more than entrench themselves firmly in the disputed territory. Once full)1 recognised throllgh their Unions, the workers will go on to make new demands; but the demand for the actual control of indllstry \vill come later than the claim to criticise those who control it. The introduction of State management will be the signal for a long battle between bureaucracy and freedom. The industries that will then be nationalised are, however, precisely those in ,vhich the demand for control is already most articulate. To this demand the bureaucracy incidental to State management will afford a stimulus, and the result will be a great growth of the spirit of unrest. After nationalisation, we may expect the Unions in the nationalised industries to lead the way. With the possible exception of a few small industries, it seems likely that the Guild system of national ownership and producers' management will be established first in those industries which pass first through the stage of national management. Every approach to the Guild s),.stem made by a Trade Union in one of these State-run industries will act as an incentive to ever.yother UniOIl. The principles established by one Union soon become the programmes of all the rest. While, therefore, the workers in some industries are feeling their way towards producers' control in face of the opposition of the State, the rest of the \vorkers will be learning to make the same demand of the private capitalist. And, if we may expect the equilibrium of joint control to be reached

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first in some one of the nationalised industries, we may expect also that there will have been in many others, both State-run and private, a greater or less encroachment of the workers upon control. When the workers have this training in constructive class-consciousness behind them, there will be no longer any need for an intermediate stage of national management. The workers, grown ,vise enough to exercise, and strong enough to win, control, will at once assume management when the State assumes ownership of the means of production. In those industries which will then re.main in the hands of the private capitalist, it will then be both possible and right to pass at once to the stage of Guild control. In all these cases, the ,vorkers will no doubt have already gained a considerable share in control; the transference to them of the whole management will therefore present no difficulty, ",-hile the State will slip naturally into ownership, and will deal as it thinks fit with the owners it supplants. At the same time, the workers in the various nationalised industries, who will also have gained already a large share in control, will make good their claim to management, while the State will restrict itself to ownership and criticism of the workers' managerial methods. The first industry in which the State and the Trade Union arrive at a satisfactory demarcation of the functions of ownership and management ,vill serve as a ' new model' for all the rest, just as the Amalgamated Society of Engineers served as the model for Trade Unionism in the past. It is impossible to say how many industries will pass through the intervening stage of national management. That, we have seen, is a matter of capitalist organisation, with which we can hardly interfere one way or the

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other. At the one end of the industrial chain, it seems clear that the railways and the mines will be nationalised. 1""he san1e fate very probably awaits the dockyards, and possibly the shipyards also. On the other hand, it is ,rery unlikely that the pottery trades, the brass trades, ironfounding, tinplate making, and many others of the sanle kind "Till ever pass through tIle stage of national o\vnership. The battle bet,veen the rival systems of Capitalism and National Guilds \vill be fought out in the great industries; and the system which \\Tins the day will then be more generally applied. Of the cotton industry it is impossible to speak; for on the one hand it seems in itself admirably adapted for producers' control; but the consciousness of the workers seems to be on the whole so little developed in the direction of contrql that nationalisation, remote as it seen1S, may have its turn. All we can say ,vith confidence is that there will be sonle industries in each class, and that it rests with Capitalism and the ruling caste to dra\v the line. 1"0 Guildsmen, the whole question should appear secondary. Their first business is to for\vard the idea of ,vorking-class control of industry. \Vhether control has to be \vrested from the State or from the private capitalist is irrelevant. Opposition to and advocacy of nationalisation are alike, viewed purely from this standpoint, \vaste of time; they mean the diversion of the movement on to a side-issue. In season and out of season, Guildsmen should be preaching control; and when nationalisation is suggest~d, they ought not to oppose it; they ought to redouble their efforts and reiterate their original demand. They have not so much surplus energy that they can afford to ,vaste it upon irrelevancies.

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VI The main object of this chapter has been to prove that it is not the business of the Guildsman either to advocate or to oppose nationalisation; but it by no means follows that he should have no policy in relation to it. It is indeed of the first importance that he should seize the occasion of nationalisation to push forward his own alternative to national management. Those who, like the Syndicalists, are content to oppose every extension of State action are merely disarming in face of the inevitable: po\verless to stop nationalisation, they are leaving the State to ste\v in its own juice. But, even if we admit that the best bargain the ,yorkers can hope to drive with the State must be a bad one, it is none the less our manifest duty to make the best of~ it. Instead of a mere repudiation of the principle of national management, the National Guildsman must present a definite and concrete demand for a share in control. We cannot hope to bring in National Guilds all round by a coup de main; we must first lay the foundation of our edifice. I have already referred to the resolutions recently passed by several important Trade Unions on the subject of the control of industry. I must here again refer to two of these. Trade Unionists in the Postal Service unite in demanding, in one form or another, a system of joint control ,vith the State department. This demand comes continually to the surface in the evidence volumes of the Holt Committee, especially in the examination of 1\1:r. C. G. Ammon of the Fawcett .t\ssociation, who, putting his demand in the form of a sllggestion that the lJnions should be consulted before the making of any change that would affect the workersl

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clearly has in mind a system of joint control. The claim has been reiterated far more clearly by the Postal and Telegraph Clerks at their annual conferences; and it is significant that they have made an open demand for joint control. This is evidently largel)7 the result of the rlissatisfaction caused by the Holt Report and by the subsequent debates upon it in the House of Commons. Here then \ve have a clear demand made in a service which is already State-run. But the Postal \vorkers have not been content \vith a ,rague generalisation; they have also offered definite suggestions as to the methods of extending to them a share in control. They have urged in the first place a great extension of the principle of recognition, and secondly, the standardising of this recognition in the form of Trade Union advisory councils, local and national, sectional and general, \vhich \vould have to be consulted before any change in organisation could be made. Such a system of advisory councils \vould no doubt fail to achieve much at first; hut it would afford the workers a valuable experience and \vould serve both to fit them to exercise a more real control and to stimulate them to lay claim to it. Recognition, backed by a system of advisory councils, is for them the half-\vay house to control. The policy of the bureaucrats, when they are driven to make some concession, will be to establish a single na tional ad visor~y council for all grades and localities, or else a series of national councils for eacll grade. Either system \vill be by itself almost worthless. The chief value of these councils \vill lie in the training they are able to afford; and from this point of view a national council is of little use. I t is local training and local recognition that is the greatest need; and

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accordingly local as well as national advisory powers must at all costs be secured. For, if the workers are to assume control, they must create a local as well as a national organisation capable of managing industry. I have dwelt so long upon the particular demands of the Postal workers because they are, in great measure, typical of the demands which will have to be made wherever an industry comes under national management. In the Post Office, it is the privilege of workers who are already State employees to show the way to those who will ere long become like them. The Postal Unions are working out half unconsciously the methods of transition from the servile to the free organisation of Labour. The second case to which it is necessary to refer again is that of the Railwaymen. For many years, the N.U.R. has invariably passed at its conferences a resolution in favour of nationalisation. The habit of years is too strong to be surlden1y broken; but at their 1914 conference this resolution changed its form. "Whilst reaffirming" their old resolutions in favour of nationalisation, the railwaymen declared that "no system of national ownership could be satisfactory" to them which did not assure them a say in the management of the industry. Like the Postal workers, the railwaymen have hegun to demand joint control. They have not yet formulated any scheme by which this partnership could be assured; but such a formulation will no doubt follow in good time. The main thing is that they have recognised the principle; for, apart from the survival of a certain amount of historical phraseology, their demand amounts to a claim for a National Guild. This has become still clearer in the last three years,

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during \vhich the Guild demand has spread rapidly among the rank and file. An instance of its growth will serve. Early in 19I7 a National Conference of the District Councils of the National Union of Railwaymen carried the following resolution: " That this Conference, -seeing that the rail\vays are being controlled by the State for the benefit of the nation during the "var, is of opinion that tlle~y should 110t revert to private ownership afterwards. Further., \ve believe that national \velfare demands that the:r should be acquired by the State to be jointly controlled and managed by the State and representatives of the National Union of Rail\vaymen." 1 Instead, then, of urging or opposing nationalisation, Guildsmen have a far more important duty to perform. The idea of control, \vhich is at last taking root in the minds of the "vorkers, must not be allo\ved to remain a mere idea. The first thing, no doubt, is to secure acceptance and understanding of the idea; but this must be complemented by the elaboration of a practical programme. Guildsmen must be ready, when the day of nationalisation comes, to urge the railwaymen to make certain specific demands; nay more, they must try to provide the railwaymen \vith a polic)! before nationalisation becomes imminent. In thinking of the Guild State which we \vould fain see in being, \ve are too apt to neglect the transitional stages through which \ve must pass on the ,vay to our ideal; but our foresight, and the foresight of the \\yorkers, in making im1 For further discus which will give the Central Bank far more discretion than it has had in framing its policy. This constitutes a new and powerful argument in favour of socialisation. But it is also true that a managed system will allow more scope for political pressure. How, then, can a socialised Central Bank be shielded from such pressure, and so enabled to pursue economic soundness in the general interest? The Labour Party's scheme for socialisation of the Bank of England proposed to equip it with a publicly appointed governing body on a representative basis, in order to ensure that the views of all important sections of the community should be represented. But it is doubtful if such a body, representing a number of different and sometimes divergent interests, would be technically or administratively competent. It would surely be better to entrust the actual management of the Bank to a very small body of highly expert full-time salaried officers, giving them an Advisory Council representative of various interests, as is done to some extent in the American Federal Reserve system. Or perhaps the Council might have rather more than advisory powers, provided that some method were established of adjusting differences between it and the full-time board of managers. These managers, I think, as well as the members of the Council, would have to be appointed by the Government. But it does not follow that the Government should control their day-to-day operations. It would be better for the State to leave them in the main with a free hand, subject only to the power of the Government to remove them at any time, and to resolve by its own fiat disputes between them and the representative Council. It is true that this involves, in the last resort, the possibility of applying political pressure upon the Bank. But it would be a power difficult to use, and probably seldom in-

104

ECONOMIC TRACTS FOR THE TIMES

cHAP.

voked. Nor can the ultimate right to apply political pressure be denied under any system of democratic government. It exists even today, in Parliament's power to legislate for the Bank, and to prescribe its policy by legislation. Moreover, the people, in a matter affecting their interests as vitally as financial policy affects them, cannot be denied the final right to say what, in broad terms, the policy is to be. All that can be done is to make it difficult for intervention to take place over small matters. It is, however, clear that, now that banking policy has come so largely under public discussion, and is generally known as a matter deeply affecting the economic welfare of society, the education of the public in the rudiments of monetary theory has become an urgent practical task. Our educational system has at least taught most of us that, in everyday affairs, two and two make four; but many people are still inclined to assume that in banking they can be made to make five if only the bankers will let them. A man knows that he cannot, by taking thought, add a cubit to his stature; but he is disposed to think that the banker could add a great many cubits to the volume of money and credit. Perhaps he could, if he went about it in the right way. But it is very necessary to get the public to understand, in broad terms, what is possible and what is not. Nor need this be an insuperably difficult task; for, while monetary theory is very intricate and controversial in its higher regions, the rudiments are not hard to understand. At any rate, democracy has to understand them, or fail; for a country's financial policy is just as important as its economic or its political policy in its effects on the general welfare. A community that does not govern itself financially is not a democracy in any full sense. Great Britain will have, in the very near future, to decide what her future monetary policy is to be. And this is bound to be largely a political decision; for the matter has come decisively into the area of political controversy. One question is whether we are to go back to the gold standard ; a second is whether we are to bring the future regulation of our money under public control. On both these questions the public, as well as the experts, are bound to have opinions; and it is vital to get these opinions as well informed as they can be made. The plain man

IV.

MONETARY POLICY

105

will never master the intricacies of monetary theory; but there is no reason why he should not be as competent to judge about money as about most other economic questions-about tariffs, for example, or State control of investment. He may not understand these matters well enough now; but he can be helped to understand them. Nor can he be denied, in fact, the right to control or influence financial policy, whether he understands or not. That is why it is so necessary to help him to understand; for otherwise he is likely to go whoring after one crank upon another-and there is no field in which cranks are so numerous, or so perverse. Popular ignorance is the crank's opportunity: so, in this matter too, we must set out to educate our masters.

8

v WHY AND HOW WE MUST SOCIALISE THE BANKS THE case for the socialisation of banking rests upon two grounds -the need to control in the public interest both the total volume of credit and its use. The volume of credit is a matter almost exclusively for the Central Bank, which also controls the currency. But the use of the available supply of credit is determined mainly by the Joint Stock Banks, which are the chief actual lenders of it to the business world. Accordingly, the public control of credit policy involves the socialisation of both the Bank of England and the Joint Stock Banks. Credit is, fundamentally, of far more importance than currency; for variations in the demand for currency arise mainly out of the issue of credit. It is true that currency appears to be the basis on which the structure of credit is built, and that banks regulate the amount of their !endings mainly by the amount of currency upon which they can call. But, for all that, currency is the less important. The supply of currency ought to conform to the supply of credit, and not vice versa; and the supply of credit ought to be determined by the needs and possibilities of business, and not by the supply of currency. An important part of the case against the gold standard is that it makes credit conform to currency, instead of currency to credit. The needs and possibilities of business are measured by its ability to deliver goods without increased cost, or with only such increase, if any, as is necessary in order to absorb unemployed capital and labour. Under a rightly managed monetary system, credit would be issued in quantities sufficient to meet business needs, and the relative values of different currencies would be left to fluctuate in accordance with the varying price-levels resulting from differences in national efficiency. Credit policy would be managed in accordance with national needs; currency 106

CHAP. V.

SOCIALISING THE BANKS

107

would follow credit; and exchange rates would be governed finally by national differences in the purchasing power of money. This cannot happen under the gold standard, because it determines the supply of currency in accordance with the available stock of gold, and so compels credit to conform to currency. Even now, when Great Britain is off the gold standard, there remains in force a fiduciary limit to the amount of currency that can be issued. Currency thus continues to govern credit. We have suspended the free export of gold; and we have in effect no gold reserve at all, for what we have is owed to France and the United States on account of the loans their banks made us in the crisis of 1931. But our supply of currency is still subject to a maximum fiduciary limit: indeed, the possible supply has become more rigid owing to the destruction of the free market for gold. This is defended on the ground that it is necessary in order to prevent inflation. But it may achieve this at the cost of preventing prosperity as well. The danger of inflation really depends on credit policy, rather than on the supply of currency. The increased issue of currency would cause inflation, under British conditions, only if it led to an unwise issue of credit. If more credit were so issued as to increase production and sales without raising costs, there would be no inflation at all. If costs were raised· only enough to absorb unemployed capital and labour, there would be no dangerous inflation, unless costs had to be raised so far as to cause a depreciation in the pound, which would make it difficult to purchase necessary imports. The object of national credit policy should be to bring into effective use all productive resources that can be used at a cost not so high as to cause a dangerous rise in prices. Ever since the Bank Charter Act of 1844, the aim of British monetary policy has been to make the regulation of the supply of money as nearly as possible automatic. Before the war, when actual gold sovereigns formed the bulk of the cash circulation, supplemented only by a small quantity of Bank of England notes, the supply of currency was determined by the available supply of gold, which thus indirectly determined the supply of credit as well. It was held that the inflow and outflow of gold would

108

ECONOMIC TRACTS FOR THE TIMES

CHAP.

in effect ensure satisfactory regulation; for a shortage of gold would force domestic prices down, and so cause gold to flow in, with the object of buying things cheap, whereas an oversupply of gold would raise prices, and so cause gold to flow out, in order to buy goods elsewhere, where they were cheaper. The movements of gold were thus relied on to keep British prices in equilibrium with prices in other countries, the means whereby this was done being the expansion or contraction of credit resulting from the plenty or shortage of gold. Under these conditions, the Bank of England was conceived as having a fairly simple function. Its task was simply to watch gold movements, and to correct them where necessary by raising or lowering Bank Rate, and so contracting or expanding credit. Its function was purely passive; for it had only to respond to forces which it did not initiate. This type of reflex action by the Bank needed no very high qualities, and aroused no serious controversies, as long as the general principles of action were unquestioned. Accordingly, on this view it did not seem to matter much whether the Bank was publicly or privately owned, and amenable or not amenable to any form of political control; whether its directors were drawn from industry, or from the City, or from any other source; and whether they took up a national or an international point of view. Of course, I am not suggesting that the Bank's functions ever were purely automatic. For even then, while it acted only as the interpreter of long-run forces arising in the business world, it did actively intervene to influence short-term fluctuations in exchange rates, and to check gold movements by other means than the raising or lowering of Bank Rate. But these activities were of secondary importance; and it remains true that before the war both currency and credit conditions were usually thought of as mainly self-regulating. There were advocates of a managed monetary system even then ; but they had little influence. The suspension of the gold standard and the introduction of Treasury Notes during the war radically altered the position of the Bank; for they removed altogether the automatic limits on the issue of currency and credit. It is true that exchange move-

v.

SOCIALISING THE BANKS

ments were still there as barometers of relative monetary conditions. But war-time foreign exchanges were largely unreal, because they were often artificially pegged, as in the case of the sterling-dollar rate. Correctives against exchange depreciation could still be to some extent applied; but their application was no longer in any sense automatic. After the war, there was in financial circles a widespread desire to get back, as quickly and completely as possible, to the old conditions of automatic regulation; and, step by step, Great Britain, in common with other countries, went back to the gold standard. It was, however, plainly out of the question to restore the actual gold circulation; and the use of paper money had therefore to be made compatible with the automatic regulation of the quantity of currency. After the gradual scaling down of the note circulation by Treasury action over a period of years, this was finally done by handing back the issue of notes to the Bank of England, subject to a fixed fiduciary limit, beyond which all notes issued must have a pound for pound backing in gold. Power was indeed taken to extend the fiduciary issue in cases of emergency, by agreement between the Bank and the Treasury; but apart from this the system was made as nearly self-regulating as possible. The fixed fiduciary issue was to guard this country against inflation, as the use of gold sovereigns had guarded it in the past; and once more the permitted supply of currency was to dictate the available volume of credit. In practice, however, there was under the new conditions a good deal more management of credit than before the war. The Bank had learned to use open market operations-the purchase and sale of securities-far more freely as a supplementary instrument to Bank Rate in affecting the volume of credit; and there was also far more attempt to check gold movements and to influence the movement of short-term funds by consultation among the Central Banks of the leading countries. This was made necessary by the great increase in the scale of international indebtedness, the uneven flow of French and American overseas investment, and the tendency of gold to move to France and the United States. While automatic action was still regarded as the ideal, practical necessities enforced far more interference

110

ECONOMIC TRACTS FOR THE TIMES

CHAP.

by the Central Banks. But the Banks, even when they interfered, repudiated responsibility for doing more than interpret 'natural' monetary movements. Indeed, under the gold standard, their powers were limited for; while their resources often allowed them to counteract an inconvenient short-term tendency, they were helpless against one that was large and prolonged. The experience, and the inconveniences, of the new conditions gave, outside banking circles, a great impetus to the demand for a more completely managed monetary system. The Central Banks had actually carried management to lengths which their protagonists had treated as impossible before the war; and their critics now urged that they ought to carry it rriuch further, so as to make the supply of credit more responsive to the needs of the industrial system. The apostles of the Central Banks replied that this could not be done without inflationwhich meant, in Great Britain at any rate, that it could not be done without setting in action forces which would drive us off the gold standard by raising prices and causing an outflow of gold. The critics answered that, in reality, no gold reserve was needed against the issue of notes, and only enough gold needed at all to meet possible demands for export. We could therefore afford to lose a good deal of gold ; and there was no reason against an increased issue of credit (and of currency to match) provided that the effect was not permanently to raise prices. They held that, while there might be a time-lag before the increased supply of goods to be created by expansion of credits came into the market, and prices might tend to rise during this period, before long the increased goods would balance the increased supply of money, and prices come back to the old level. Gold would therefore flow out only for a time, and might flow back later. We could well afford to take the risk in order to stimulate industry. The Bank of England remained sceptical. As the guardian of the gold standard, it was not prepared to take risks, or to admit that we could afford to lose gold at all. It therefore kept money rates high, restricted credit, and promptly checked any tendency towards expansion by selling securities in the market. It continued to follow this course until the world slump made the

v.

SOCIALISING THE BANKS

III

maintenance of dear money impossible, and cut down the demand for credits even below the restricted supply. And even then the Bank, in common with the Treasury, continued to oppose all plans for expansion by State action, based on a national development loan. Exchange stability and the maintenance of the stock of gold remained throughout the dominant considerations in the minds of the Bank and the Treasury. Naturally, this policy aroused a storm of criticism; for it came near to condemning British industry to permanent depression. If other countries boomed, Great Britain had to keep her interest rates high, and so restrict credit, in order to avoid loss of gold or short-term funds. If other countries slumped, with reactions upon us, nothing must be done to counteract depression, again for fear of provoking a 'flight from the pound'. Two possibilities emerge. Either the Bank of England was right in holding that we could not keep on the gold standard except by continuous credit restriction; or its critics were right in holding that an expansionist policy, while it might have caused a temporary outflow of gold, would not in the long run have raised prices or menaced the gold standard. If the Bank was right, its rightness constituted a very strong argument for going off the gold standard. If its critics were right, this would probably not be necessary. In either case, it seemed to a great many people that the best course was to embark on a policy of expansion, while remaining on the gold standard, and go off gold only if in the event this proved to be the necessary sequel. The critics, of course, held that the trouble was mainly due to our wrong policy in going back to the gold standard at prewar parity in I 92 5, as this had overvalued the pound in relation to its purchasing power. They differed on the question whether, having done this, we could afford to stick to it, and to carry through the requisite readjustments in our business costs, either by lowering wages and capital charges, or by increasing the efficiency of production. The possibility of our expanding credit and staying on the gold standard clearly depended on our success in achieving this.

112

ECONOMIC TRACTS FOR THE TIMES

CHAP.

In the event, we did not try an expansionist policy and we did not succeed in lowering our costs. Indeed, our costs rose, relatively to those of other countries, which both cut wages and increased efficiency faster than we. In the end, we were driven off the gold standard, partly because our costs were too high, but mainly because of adverse movements of short-term funds which were a result of the world slump. The question then arose whether, in going off gold, we had freed our hands at last for the adoption of an expansionist policy. But the official view was now even more strongly hostile than ever before. We could no longer lose gold, and the Bank was no longer under a fixed obligation to maintain the exchanges; but prospective Budget deficits caused a demand that the State should restrict its expenditure at the cost of intensifying depression, and the fear of a further flight from the pound caused intense anxiety to prevent the depreciation from going to any greater lengths than were clearly unavoidable. Off the gold standard, as on it, the country had to endure a restrictive credit policy. Interest rates were raised high in order to check the outflow of short-term funds. It is true that credit restriction, as such, was not very seriously felt; because there was little desire among business men to expand their operations. They grumbled at the high interest, rather than at the scarcity of credit. The stimulus to exports proved to be disappointing, in face of deepening world depression. Only the State could have embarked on a policy of national development; and that was the last thing the new National Government was likely to do. Both it and the local authorities were ruthlessly cutting down capital expenditure in the name of national economy. The mere departure from the gold standard has not, therefore, either given us cheap money or led to an expansionist policy. It has actually left money dearer and made expansion far harder, wherever it needs the aid of the State or the Bank. Either this permanent restrictive policy is inevitable, or it is not. If it is, no change in the ownership or control of the Bank of England will help to alter it; for a socialised Bank would have to behave in the same way. But, if it is not, it may require a

v.

SOCIALISING THE BANKS

reorganisation of the Bank to get the possible alternative policy pursued. What is the alternative, if there is one? Under present conditions, a mere lowering of bank interest would be unlikely to produce much result; for there is little willingness on the part of business to expand its operations, even if credit were cheaper and more abundant. More abundant credit would be of use only if, at the same time, the State took action, by way of a policy of national development, to bring it into play. But the State, on its side, could not successfully pursue such a policy if the Bank continued to restrict credit. The two things go together-State action to increase the volume of business, and Bank action to provide additional credit. Credit expansion would be futile with the National Government in its present mood. But could the State, in its present financial difficulties, afford a development policy? And could the Bank expand credit without causing a dangerous further fall in the pound? I believe the State could, because it would be more than repaid by industrial revival at home, and because it could raise the money on favourable terms, if the Bank were expanding credit at the same time. But could the Bank? In other words, would credit expansion raise prices and cause a further fall in the pound, even perhaps to the extent of making it difficult for us to pay for necessary imports? I believe it could, but only on condition that the destination and use of the increased credit should be kept under very strict control. If the supply of credit were simply expanded, and the Joint Stock Banks left free to apply it as they chose, or if State development schemes were arranged without a very strict regard to their effects on the demand for imports, credit expansion would raise prices and would cause the pound to fall. In other words, the policy of expanded credit involves the closest coordination of policy, under unified direction, between the State, the Bank of England, and the Joint Stock Banks. The State has to set development going, the Bank of England has to ensure an adequate supply of credit, and the Joint Stock Banks have to see that the additional credit goes to the right people,

114

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CHAP.

and not to the wrong. Moreover, the State and the banks, with the power to give or refuse orders and credit as their weapons, have to take stringent measures in order to prevent prices from being raised. These are the indispensable conditions of a successful expansionist policy at the present time. They are difficult conditions at best; but they are impossible as long as the State, the Bank of England, and the Joint Stock Banks are separate agencies, under different control, and without a unified policy. This is, in a nutshell, the case for comprehensive socialisation of the banking system. Nor is this all; for there is another important factor in the situation-a fourth agency that must be unified, in matters of policy, with the other three. The State, if it is to pursue a policy of national development, must control investment as well as credit. The supply of long-term capital, as well as of shortterm funds, must be brought within the scope of the development scheme; and this involves control over home, equally with overseas, capital issues. The socialisation of all the hundreds of issuing houses-many of them responsible, in years, only for a single issue-is clearly out of the question; and it would probably be wisest, in this case, to start a totally new institution, a National Investment Board, with wide powers both to invest existing public funds and to borrow new capital directly from the public, and to authorise or reject (and in certain cases promote or guarantee) new capital issues by other bodies. But I have discussed elsewhere this project of a National Investment Board; and I do not propose to deal with it further now. I hold, then, that, unless we are prepared to envisage the permanent continuance of a restrictive credit policy, we must set to work to build up a co-ordinated organisation for the promotion and financing of a big public policy of economic development-in effect, a National Plan for Great Britain. But any such plan involves the effective public control of the banking system, as well as of the machinery of capital investment. I know that, in the past, we have been told again and again that it is vitally necessary to avoid any political interference with the

v.

SOCIALISING THE BANKS

banking system, which must be left free to do its highly technical work in its own way. But it is now clear that banking and politics cannot be divorced, and that, unless the State takes steps to control the bankers, the bankers will inevitably control the State. Banking policy, whether we like it or not, is a most important part of politics; and, unless the politicians and the banks pull the same way, and follow a common policy, it will be not the banker but the politician who will find his schemes brought to nothing as soon as international complications arise. It is not necessary to attribute this situation to any deliberate and carefully matured conspiracy of the bankers against the public. The power has fallen into their hands by the logic of events, far more than they have consciously planned to make it their own. But the result is the same. Statesmen attempting to govern within the limits of a national policy are helpless in face of the vicissitudes of the world financial system, which is the bankers' province. There are in this matter at present three distinct schools of thought among those who agree upon the necessity of drastic changes in our banking policy. One of these schools holds that the powers possessed by the State are already adequate, without any direct measure of socialisation, if they are rightly used. The problem, it is said, is to secure a management of currency and credit designed to make possible a fuller development of our economic resources through cheaper and more abundant money; and this object can be pursued with ease and safety now that we are temporarily at least rid of the ever-present fear of a drain of gold. The suspension of the gold standard is, on this showing, the opportunity for an expansionist policy; and it is urged that a Chancellor who firmly presses for this policy can secure its adoption through the Bank of England without any direct measure of socialisation. But, as we have seen, the departure from the gold standard is at present leading to a very different result-to a more intensely restrictive policy on the part of the State and to the maintenance of high interest rates by the Bank. Nor is escape from these conditions possible unless both the State and the Bank unite in following an expansionist policy under co-ordinated control.

n6

ECONOMIC TRACTS FOR THE TIMES

CHAP.

A second school of thought urges, with the same objects in mind, the complete socialisation of the Bank of England. The Bank, it is urged, is at present a private corporation dominated by the financiers of the City of London, and prone to take the point of view of the City rather than of industry or of the community as a whole. The personnel of the Bank's directors, it is argued, needs substantial amendment; and the Bank itself, wielding so great a power for good or ill in our international dealings as well as at home, ought to be a responsible institution under full and direct public control. This has been in the past the policy of the Labour Party, which has advocated the socialisation of the Bank of England, and its reconstitution as a public corporation under the State, with a governing body representative of industry and of the consuming public as well as of commerce and finance. But there is a third school of thought which holds strongly that such a measure will not go nearly far enough, and will largely fail of its effect unless it is extended to cover the great Joint Stock Banks as well. This school points out that the problem to be faced includes not only the reform of monetary policy, in order to secure a more abundant supply of credit, but also an effective guidance of this credit into the right channels of economic development. Under our present financial system, as we have seen, the Bank of England's policy is concerned mainly with the total volume of credit, which it regulates primarily in accordance with international considerations, whereas the Joint Stock Banks are concerned with the distribution of this volume of credit among the several applicants for bank advances. Socialisation of the Bank of England would, to a great extent, give the State control over the volume of credit; and it would doubtless also enable the State to influence, up to a point, the policy of the Joint Stock Banks in its distribution. But it would not give the State any direct or at all complete control in this sphere; nor would it enable the State to tackle effectively the problem of those 'frozen credits' which have arisen out of the banks' past advances to industries now in a state of depression. Now, the fundamental purpose of controlling the financial

v.

SOCIALISING THE BANKS

I

17

machine is not only to secure a currency system managed on expansionist principles in conjunction with a State control of investment at home, as well as abroad, but also to secure effective leverage for a concerted policy of industrial reorganisation and development. For years past we have been watching the failure of the great basic industries to reorganise themselves, or to get free from the masses of bank indebtedness that are weighing them down and keeping up their costs of production. The number of businesses virtually in pawn to the banks can be reckoned in thousands; and clearly the policy of the banks, both in dealing with frozen credits and debentures and in making fresh advances to the depressed industries, is bound to be a very important factor in the work of reorganisation. Most people will agree that these frozen credits ought to be separated sharply from the ordinary short-term advances made by the banks, and somehow funded in the hands of a separate corporation, or series of corporations, on terms which will relieve the pressure upon industry, under the condition that industry, in return for this relief, takes effective steps to set its house in order. No less clearly, the granting of current advances ought to be closely connected with this policy, and made conditional in the same way. If the State-as seems necessary in view of the prolonged failure of business to reorganise itselfis to be the primary agent in this work of industrial reconstruction, it is surely indispensable that the State shall have direct control of that part of the financial system through which the reorganised industries will get credit, as well as of the liquidation of the frozen credits already in existence. For these reasons, socialisation of the Joint Stock Banks seems, from the standpoint of national economic planning and development, the necessary complement to socialisation of the Bank of England. This does not mean that either the Bank of England or the Joint Stock Banks ought to be taken over and run by the Treasury or on the lines of a Government department; for, as I have long urged, that form of socialisation is out of date. What is needed is to reorganise the Bank of England as a public corporation, similar to the Central Electricity Board, with a body

118

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CHAP.

of directors nominated and removable by the Government, and so constituted as to include representatives of industry and labour as well as of finance. I should be disposed to favour a small full-time governing body, broadly representative of these types of experience, aided by a larger court of governors drawn directly from each of the main groups concerned in the efficient working of the Bank. Day-to-day political interference should be kept down to the absolute minimum; but there should be no doubt concerning the final control of the State through its power to appoint or remove the governors. The socialised Bank's employees would not be Civil Servants, any more than the employees of the Central Electricity Board or the B.B.C. are; but in matters of high policy it would be fully amenable to public control. The Joint Stock Banks could be dealt with on similar lines, and reorganised in much the same way as public corporations under State control. For the present, in order to reduce changes in structure to the minimum and to avoid the creation of an instrument so large as to be unwieldy, it would be best to leave the ' Big Five ' in separate existence, only equipping them with new Boards of Directors appointed by the State in such a way as to ensure the closest contact and co-operation among them and between them as a group and the reformed Treasury and Bank of England. There has been far too little contact between the Central Bank and the Joint Stock Banks hitherto. Under the new system, they ought to work as closely related parts of a single unified machine, in constant touch with the needs of industry and commerce as well as of finance. At that point, for the time being, direct socialisation of our existing financial institutions had best stop short, though it may need to •go farther at a later stage. Bill brokers can be left, as now, to borrow from the Joint Stock Banks, or, on occasions of stringency, from the Bank of England, with the assurance that, if the banks are in the hands of the State, policy in financing the business of the broker will be effectively governed by considerations of the public interest. Much the same conditions apply to acceptance houses, except that these have larger resources of their own, and therefore rather more independence. The neces-

V.

SOCIALISING THE BANKS

sary degree of control over them could, however, be secured if the banks themselves were in public hands. Broadly, then, our aims in bringing the financial machine under effective public control will be threefold. First, we must set out to secure that our international financial transactions on short term shall be so managed as at once to keep our foreign exchange position under satisfactory control and to ensure an adequate supply of credit and currency for the needs of domestic industry and commerce-'adequate' here meaning sufficient to permit a policy of industrial expansion leading to increased employment to be pursued. This is mainly a matter of the policy of the Central Bank, to be brought under public control by the socialisation of the Bank of England. The second aim is to ensure the best possible use of the available supply of credit in order to increase production and employment in the industries capable of expansion, and at the same time to liquidate speedily the top-heavy interest burdens on industry which are a legacy from the difficulties of recent years. This is to be achieved mainly by the socialisation of the Joint Stock Banks, accompanied by a drastic writing down of their 'frozen' assets. The third aim is to stimulate home investment, and at the same time to limit overseas investment as nearly as possible to the real surplus available for this purpose, without cutting off such overseas loans (to India, for example) as are indispensable if we are to continue to receive the interest on our past !endings. Briefly, I conclude that the indispensable first steps towards this threefold policy are the creation of a National Investment Board and the complete socialisation of central and deposit banking-that is, of the Bank of England and of the 'Big Five' Joint Stock Banks. Unless at least these things are done, and done simultaneously, chaos is likely to result. For, if we try to nationalise only the Bank of England, we shall only start a disastrous tug-of-war for power between it and the Joint Stock Banks, whereas, if we socialise both the Bank and the' Big Five', the control of the rest of the financial machine, while it presents big technical difficulties, will at once become a manageable problem. Nor will the State be able to take effective steps towards the rationalisation of industry until it has both capital

120

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CHAP.

v.

in its hands to invest in the reorganisation of business and full control over the Joint Stock Banks as the providers of credit. On all accounts, therefore, socialisation of the key positions of the banking system is the necessary next step towards an effective policy of national planning and public control over economic affairs vital to the public interest.

VI THE WORLD ECONOMIC OUTLOOK FROM THE STANDPOINT OF LABOUR

IN this paper dealing with the world economic outlook, attention will be given, less to the immediate prospects of the next year, or two or three years, than to certain underlying tendencies of the present economic system, and especially of the new forms which it is rapidly assuming under our eyes. The study of trade fluctuations, which are for the world as a whole the most potent cause of unemployment and distress, is a matter of vital importance, to which many books and papers have been, and many more will have to be, devoted. I shall have little to say of such fluctuations here, except as they are germane to the narrower purpose which I have in view. This purpose is to consider how, and how far, the measures which are now being taken in every developed country for the reorganisation of industry are likely to react on the volume of production and employment. These measures, though they take many different forms, are commonly grouped together under the name of 'rationalisation'. As far as they are relevant to our present study, they include: I. The improvement of productive efficiency by the provision of more efficient plant and machinery; the better planning of factories with a view to the integration of related processes; the elimination of unnecessary fuel consumption and transport; the simplification and intensification of the labour process, as well as the provision of more hygienic factory conditions and, where necessary, better vocational selection and training; the improvement of the technique of factory management and job control; the standardisation of products and the elimination of unnecessary variations and processes in their manufacture; and 121

9

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the more rapid scrapping of both things and men in the light of the most recent technological knowledge. 2. The elimination of such forms of national competition as are inconvenient to the organisers of business, either by complete amalgamation or by the conclusion of working arrangements between firms concerning the amount and character of the production of each unit, the prices to be charged to various types of consumers, the buying of materials or auxiliary services, the development of markets and the actual methods of sale. 3. The attempt to ration production in accordance with the economic demand both of the market as a whole, and of particular markets within it, both by the methods described in (2) above, and by the conclusion of similar arrangements on an international scale; and the consequent growth of business organisations essentially international in character, and not readily amenable to control by the nations across whose frontiers they operate. It is not suggested that these three groups of tendencies between them comprise a full statement of the policy of rationalisation, or, on the other hand, that they are likely to be applied in all their aspects anywhere at one and the same time. But they do stand, broadly, for three very marked trends in present-day economic organisation; and they do, taken as a whole, raise certain questions of paramount importance to the working classes and of very direct bearing on the probable future course of world trade. The first group of tendencies, centred round the processes of production, clearly leads directly and in the first instance to the elimination of 'surplus' labour and to radical changes in the labour process itself. The general effects produced by it are, in the first place, a reduction in the absolute quantity of labour used up in the production of a given quantity of commodities, and, in the second place, a change in the personnel employed. The absolute quantity of labour is reduced because more of the work of production is transferred to the machine, because the machine itself is made to run faster, and because the new plants are commonly equipped on a basis which assumes their con-

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tinuous operation, so that the effect of each in 'saving' labour is spread over a larger number of workers. It is, indeed, a common phenomenon that the most up-to-date and costly plants, which have the lowest costs of production when they are running full time, cannot be made to pay at all if they are compelled to work on a part-time basis. Besides this reduction in the absolute quantity of labour needed for the production of a given quantity of goods, the first group of tendencies described above effects a change in the personnel employed. Certain sorts of skill, which have been of 'key' importance in older methods of production, become altogether obsolete, or are needed only in greatly reduced amount. New types of machine dexterity, which can in most cases be quickly acquired, have to be developed; and there emerge here and there new really skilled trades, especially in connection with the maintenance of the new machines. At the lower end of the scale, a good deal of purely unskilled labour is eliminated by the development of highly mechanised transport within the works, as well as by new grouping of factory processes and buildings which reduces the amount of such transport needing to be done. In general, the relative quantities of highly skilled and of purely unskilled labour are decreased, while the relative quantity of semi-skilled labour grows. This tendency has, of course, been at work for a long time past; but the effect of the new forces is greatly to speed up its operation. Now, these changes in the character of the labour force have very direct reac~ions on working-class conditions and on the Trade Union Movement. The reduction in the demand for certain classes of skilled work leads to the speedy dismissal of a large body of older craftsmen; and most of these are no longer adaptable enough to learn new trades, and are, therefore, liable to be flung upon the scrap-heap almost as much as the old machines which they used to tend. The younger craftsmen, who might be more adaptable, tend to be retained in their jobs when the older men are discharged, with the result that the unemployed come to include a large proportion of men, who could not be readily transferred to alternative employments even if these were available.

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Moreover, at the other end of the scale, the men who have become used to doing purely unskilled work are hardly more adaptable than the fully skilled. They will not, for the most part, make good machine operators, capable of staying the pace in a modern works run on up-to-date lines; and, as with the craftsmen, the older they are the less easily can they make the change. It is, therefore, not surprising to find severe unemployment among the older labourers as well as among the older craftsmen. The craftsman's trouble is that he cannot get a fresh job at the trade he has learnt; the labourer's is that the demand for unskilled, as against semi-skilled, labour in industry generally is on the decline. The effect of all this is that, in the countries which have been undergoing the most rapid transformation of industrial methods, the unemployed include a large body of seriously unadaptable workers; and this undoubtedly makes harder the expansion of new industries to take the place of the old ones whose total demand for labour is no longer advancing in proportion to the growth of population. This point, however, cannot be discussed satisfactorily until we have considered the effect of the remaining tendencies in industrial organisation on the demand for labour and on the course of production. For their influence is, for the present, the all-important factor. The saving of labour and the making of industry more efficient on its productive side ought obviously to be sheer gain, provided only that greater efficiency is secured not by taking more out of labour, but by a real reduction of the quantity of labour required to produce a given quantity of goods. Each reduction of this sort ought to be accompanied by a corresponding growth in demand, more production in one industry balancing more production in another, and creating in each either higher money wages or lower prices which will cause the same wages to command more goods. Even if productive efficiency expands in different industries at different rates, this ought not to cause unemployment, but to result, subject to some friction and to some timelag, in a readjustment of relative prices and of the relative quantity of labour employed in each industry concerned. The world ought as a result to enjoy the consumption of a

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larger aggregate of goods; and there ought to be no limit to the expansion of consuming power save that set by the world's preference of more leisure to greater economic wealth. But everyone is all too painfully aware that this is not what actually happens. It is true, indeed, that the quantity of goods produced in the world as a whole has continued of late years to increase; and, though the rate of increase has been very different for different countries-for the United States and for Great Britain, for example-there has been an increase of some size in practically every separate country. This increase, however, has been, especially in the older countries and above all in Great Britain, far less than it might have been. Idle plant, unemployed labour, and the part-time use of many factories and of many workers, are ample evidence of the great resources of productive power that are lying unused. Nor is this true only of the period of exceptional depression which has followed upon the American collapse of 1929, upon the steady rise in the goods value of gold and on the fall in the price of silver, with its effects in the purchasing power of the Far East. The depression of the past few months has added greatly to the numbers of the unemployed, not only by its direct effects on the volume of trade, but also by speeding up the pace of rationalisation and the supersession of older by newer works and workers. But unemployment was with the world, and, above all, with Great Britain, as an economic problem of the first magnitude long before the American collapse occurred. It is to the causes, and the probable future, of this persistent form of the disease of unemployment, rather than to the present world epidemic of under-production and distress, that I am seeking to direct attention. This brings me to the second group of tendencies outlined at the beginning of my paper. The advocates of rationalisation are always careful to stress the point that it is a matter, not merely of reorganising the methods of production within a single works or firm, or even of the repetition of this process in the case of hundreds or thousands of firms at the same time, but essentially of treating each industry, or a large part of it, as a unit, and planning the form, methods and amounts of produc-

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tion for the industry as a whole. Any such planning must, of course, involve, if not actual amalgamations, at the least close working arrangements among the hitherto competing businesses within the industry or group concerned. Indeed, such amalgamations or arrangements have been so marked a feature of the reorganisation of industry in recent years that in the minds of many they are regarded as the distinguishing signs of rationalisation quite apart from any changes in the methods of actual production. Rationalisation, we are sometimes told, is simply a new name for the trustification or cartcllisation of industry. The old names had a bad sound; they were unpopular with the consuming public and liable to provoke anti-trust legislation. A new name, with a compelling and virtuous association of ideas attaching to it, was therefore needed; and what could be better than Rationalisation-for who will dare to set himself up against Reason itself? There is certainly a measure of truth in this view; but it is none the less misleading. That .rationalisation leads to, and involves, the drastic limitation of past forms of competition, the creation of large amalgamations and still larger working agreements and cartels-indeed, most of the familiar phenomena associated with trusts and combines-is, of course, an undeniable fact. The distinction is that rationalisation, in idea if not always in execution, contemplates the use of combination in order to make easier the application of new labour-saving methods of production, simplification and standardisation of processes and products, better grouping of works and processes from the standpoint of ~fficient manufacture, and the rest of the technical developments mentioned as belonging to the first of the three groups of tendencies specified above. The fact, however, remains that a feature common to most schemes of rationalisation or the like is the coming together of a number of producing firms previously in competition one with another into a group in some degree co-operative and conscious of its unity. This coming together is in many cases essential to the realisation of the productive economies hoped for from the scheme. It may, for example, be necessary, in order to take advantage of the most efficient methods of production, to equip

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a single factory for the making of a large quantity of a single uniform product. The making of this product may previously have been divided between a number of separate firms, each making other goods as well. It may now be agreed that one factory should specialise wholly on the production of one class of goods, while another confines itself to some other class of product, with the idea of reducing costs by turning out the whole supply of each commodity at the works best equipped for making it, and of allowing this or these works to run full time by concentrating the entire supply in its hands. Or, where a number of plants have been working short time it may seem desirable to close down altogether those with the highest costs, in order to concentrate production at those which remain, and thus allow them to obtain the increasing returns dependent on full-time working. No one will deny that these are very common phenomena of schemes of rationalised production. The closing of works and the specialisation to particular classes of products can be brought about most easily when, as in the chemical industry, the previously separate firms have been completely amalgamated into a single unified business. But they can also be pushed some way, by means of transferable output quotas, central compensation funds, and the like, even where the firms retain their separate financial basis and come together only on the basis of a limited agreement, as in a cartel. The principal question which I wish to raise in this paper is concerned with the effects of amalgamations, or arrangements of this order, on the course of production and employment. Is it, or is it not, the case that the conclusion of arrangements designed in part to secure more efficient and cheaper production may also result in the drastic limitation of output, and accordingly in a drastic reduction in the volume of employment? Let us consider first what happens in a free market when there are a number of separate competing producers. Let us assume that, in such a market, the price-level is tending to fall, owing to monetary causes quite apart from the conditions of production, and that this falling level of prices is acting as a check to the expansion of trade. In such circumstances competition compels each producer to bring down his prices in order to keep his

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accustomed share of the total trade. If this results in bringing selling prices below costs for the less efficient firms and in keeping them below costs for a substantial time, these firms gradually disappear from the market, and lose their trade to their rivals. In these days, even apart from the factor of combination, the process of squeezing out takes a good deal longer than it used to take, especially when the banks go on lending to weak firms instead of using their power to force them out of existence. But in default of combination, the process is bound to operate in the long run; and, in the meantime, prices are kept down by competition, and there is no possibility of deliberate restriction of output. Each business must, in its own interest, struggle to get all the trade it can; and production will accordingly be pressed to the limits of what the market will absorb, even if prices have to be lowered sharply in order to achieve this. The advent of combination, and still more of the special forms of combination most closely associated with the rationalisation of industry, radically changes the situation. For now, within the national field at least (we will come to the international aspect of the problem in a moment), the question of the amount to be produced becomes a matter for concerted control by the entire industry. At any given price, a certain quantity of products can be sold, the quantity varying inversely with the price according to a formula which can usually be at any rate roughly determined. The industry, having either output or price under its control --for it can determine either, but not both-is in a position either to fix a schedule of prices from which the amounts that can be marketed will follow almost as a matter of course, or to fix a volume of output from which the prices obtainable will follow in much the same way. High output will mean low prices; low prices will allow more to be produced, and high prices less. It is still for the consumer to say how much he will pay for a given volume of output, or how much he will buy at a given price; but the given volume, or the given price, can now be consciously settled by the associated producers, who will, of course, fix on the price or output level that promises to be most advantageous to themselves.

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Is it not likely, under these conditions, that it will often pay the producing firms best, or at any rate seem likely to pay them best, to sell a smaller quantity of goods at a high price rather than a larger quantity at a lower price? As long as the separate firms were in competition, this would probably not have paid them, even if they had been able to achieve it, because the sharing out of the market among them all would have caused each works to be under-employed, and would thus have raised its costs. The higher price obtained would, in many branches of production, have been more than offset by the higher costs of making the goods. But the unified industries of which we are now speaking are differently placed. Instead of running all their works part time, they can scrap or close some of them altogether, and concentrate the whole output where it can be produced at the lowest cost. The smaller number of works, running full time, can then achieve, on the basis of a smaller total output from the industry as a whole, the entire benefit of increasing return due to large-scale operation, subject only to such costs or compensation charges as have to be incurred in respect of the works which are no longer allowed to produce. It seems to me clear beyond dispute that the growth of combination in forms which make this situation possible is likely to cause many employers to adopt the policy of restricting output and holding up prices instead of bringing prices down in the hope of selling more goods. Of course, this policy will work out differently according to the differing elasticity of the total demand for various classes of goods; but it is likely to operate most strongly in the very large group of goods for which the demand is neither highly elastic nor highly inelastic in terms of price. And, wherever it does operate, it is certain to exert a powerful effect upon the volume of employment. I am suggesting, in fact, that rationalisation, as it is practised at present, is reacting unfavourably in two distinct ways on the volume of employment, whatever may be its beneficial reactions in other respects. It is, in the first place, diminishing directly the amount of labour required for the production of a given volume of goods, both by improving the technique of manufacture and by causing output to be concentrated in those places

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where least labour will be needed. And it is, in the second place, tending to restrict artificially the total quantity of goods produced, and so refusing any outlet through increased production to the labour displaced by the first method. To the extent to which this is true, it follows that the labour which is displaced by rationalisation, as well as the great bulk of the new labour that is flowing yearly into industry, must find employment, if at all, outside the sphere of the rationalised trades. But there is no force at work likely to cause these other trades to absorb, at any rate permanently, more than their previous proportion of the national labour supply. Temporarily, such forces may have been at work. Indeed, it is probable that the very great increase in the numbers employed in distribution, due largely to changes in the exactingness of consumers' demand for delivery, wrapping, politeness in shop assistants, and so on, and the rapid development of road transport, have, for the time, diminished the effects of the discarding of labour by those productive industries which have been altering their methods of production and organisation in the ways outlined earlier in this paper. But there are clearly limits to the numbers of people who can be employed in transporting and handling as distributors a restricted volume of goods; and the recent contractions of employment on the railways, and diminishing rates of increase in the other branches of transport and in the distributive trades, seem to indicate that the point of saturation has been almost reached. Whither, then, are the disemployed tb betake themselves? It is easy enough to talk about the rise of new industries, and the need for large-scale measures of industrial transference. It is not at all easy to say what these new industries are to be, or how they are to be persuaded to grow at anything like the requisite rate. Nor is it at all clear that, where new industries do grow at present, they are more likely to represent a fresh demand for labour than a transference of demand from some established branch of production. It is doubtless true, in the long run, that industrial transference on a very large scale will be necessary; for the technical revolutions through which we are passing will entail a radical redistribution of labour between occupations.

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But there are at present formidable obstacles in most countries in the way of any rapid mass transference of redundant workers. New industries cannot grow up, without destroying old ones, unless there is a real growth in consumers' demands. But consumers' demand cannot increase (save temporarily under some form of artificial stimulus) unless wages or profits, or both, increase; for demand consists of the incomes which people have to spend. Spending takes two forms-spending in the narrower sense on consumable goods and services, and that spending on capital goods which is ordinarily called 'saving'. The advocates of the Wages Fund theory were no doubt wrong in holding that the amount of spendable income paid out as wages varied directly with the amount of spendable income saved as capital, and applied to the development of production; but most of us nowadays are prepared to admit that their view contained an element of truth. At the present time our industrial system in Great Britain is suffering from a shortage of spendable income in both its forms. There is too little demand for consumable goods at remunerative prices to keep our existing industries employed; and there is also a shortage of 'savings', in relation to pre-war habits of accumulation. If there is not an actual shortage of capital, this is not because capital is plentiful, but because the openings for its remunerative employment are few. A revival of industrial prosperity would, of course, generate at once more wages and more profits, and thus lead to higher demand both for consumable goods and for capital goods. But whence is this revival of prosperity to come? Remember that we are leaving out of account the temporary ebbs and flows of industry connected with general fluctuations of business conditions, and considering for the time only those persistent factors which operate in periods of good and bad world trade alike. A policy of low production at high prices may yield more profits than one of higher production at lower prices; but it is self-evident that it yields less total utility. It is also certain to yield less employment, and practically certain, in view of the inflexibility of wage rates, to yield a smaller total sum in wages. It will thus react unfavourably on the volume of demand, and

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therefore tend both to perpetuate itself in the industries to which it is applied and to put obstacles in the way of the growth of new industries designed to elicit new demand. Its restrictive effects will spread far beyond the industries immediately concerned, and will react on the economic system as a whole. 'Savings' are generally regarded as new resources available for the production of additional wealth. But they may in effect, under certain conditions, serve only to replace existing wealth which the things created by means of them render obsolete. Where rationalisation is advancing fast, this is likely to be true in an exceptional degree. New capital applied to industry is likely to be used to a considerable extent, not in providing the means of creating additional commodities, but in replacing existing means of production by new ones capable of producing the same goods at lower costs. When this happens, and to the extent that it happens, the new capital goods, when once they have been made, do not lead to any creation of additional goods or to any employment of additional labour. Indeed, they are likely, as we have seen, to diminish the demand for labour, by fostering its more economical use. It is therefore clear that, to the extent to which new capital is applied to replacing means of production which are then scrapped more rapidly than of old, the available capital resources for the development of additional production are liable to be diminished. This is the germ of truth in the Wages Fund theory, in its special application to the circumstances of the present time. I am suggesting, then, that while the new methods of production lead as a rule to the creation of goods with less expenditure of capital and effort for each unit produced, the new methods of economic organisation which usually accompany them tend to defeat the ends which make the saving of effort desirable, and to cause unemployment quite apart from that which is the familiar result of the periodical fluctuations of trade and prosperity in the world as a whole. On this account, the familiar argument that rationalisation, whilst it may cause unemployment temporarily, will before long bring about such an expansion of output as to reabsorb all those who have been

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displaced, appears to me to rest upon a dangerous misunderstanding of the economic tendencies of today. I have so far discussed this problem solely upon the national plane, and in its relation to purely national combinations among business men. But, as we have seen, the processes of rationalisation and combination by no means stop short at national frontiers. We have already in the Continental Steel Cartel, in the International Rail Makers' Association, in the Nickel Agreement, and in numerous other instances, the extension of trade agreements for the regulation of output or the allocation of markets far beyond national boundaries; and it is increasingly the declared object in creating national groupings in an industry to lay the foundation for an international cartel or understanding at a later stage. The coal trade furnishes an obvious example of the prevalence of such an idea. International combination is likely to have, in the world as a whole, much the same effects on production and employment as national combination has within a more limited area. If national combines are in competition with one another, each may have a strong motive for restricting supply and keeping up prices within its home market, at any rate where that market is protected; but each is likely to pursue as far as it can the policy of low prices and large sales in such foreign markets as remain open to it. This has in recent years often resulted in what is called 'dumping', in the sense of selling in a foreign market at less than the home price. It has, especially, often enabled the countries which do not produce a particular commodity to get their supplies of it cheaper than those which do. But the effect of this competitive selling in foreign markets has been-in the case of coal, for examplesometimes to force down prices to a level unremunerative to many producers; and this condition leads to the desire for the extension of combination over the international field, with the object of keeping up export prices, even at the cost of a reduction in the quantity sold. This tendency may not yet be very far advanced; but it is undoubtedly very much in men's minds, and likely, if economic policy retains its present direction, to exert a growingly restrictive influence on world production, and especially on the production of Western Europe. We are thus

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confronted with the paradox that more scientific methods of production and more scientific and orderly forms of economic organisation, instead of leading to a general rise in the world standard of life, are so acting as to cause a widespread fear of over-production, despite the boundless range of unsatisfied human needs, and a new unemployment problem far more obstinate and socially destructive than that which we have learned to associate with the general fluctuations of world trade. Nor is there, while we continue on our present course, any reason to suppose that we are on the way to conquering this disastrous failure of our economic system. For rationalisation is likely to be a continuous process, spread over a long period of years; and there is every reason to fear that the restrictive tendencies which mark it now will be equally characteristic of its later stages. Upon the transport trades, these phenomena of the productive system react disastrously. For, while improvements in the arts of transportation have again and again been the parents of economic expansion, and will doubtless be this in the future, it remains true that, in the case of any existing agency of transport, prosperity depends mainly on the quantity of goods needing to be carried from one place to another. Anything that restricts production automatically restricts transportation as well, though this effect may of course be masked by the simultaneous operation of other forces. Thus, in Great Britain of late years, the reduced rate of expansion of industrial production has re!lcted unfavourably on the railways and, even more, on shipping; but its effects on transport as a whole have been obscured by the contemporary growth of new services in the sphere of transportation by road. Railwaymen are apt to attribute to road competition what is in fact due to the failure of production to expand at an adequate pace. Seafarers and shipowners should see the situation more clearly; for air transport is not yet (I do not pretend to know whether it will ever become) a sufficiently powerful rival to influence the position. The index of shipping freights (though, considered as an index, it is by no means wholly satisfactory) bears eloquent testimony to the dependence of transport agencies for their prosperity on the

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35

volume of goods needing to be carried. Of course, restrictive tendencies may manifest themselves in the sphere of transport as well as in that of production. There have been, from the very beginnings of modern combination, important instances of it in the shipping trade. Indeed, the shipping conferences were for some time the outstanding examples of price maintenance by agreements transcending national boundaries. But, under conditions of restricted production, it is by no means easy to apply a restrictive policy to the shipping trade, save within a relatively narrow field. In the case of liners a good deal can be done, and is done, to keep up freight rates; but tramp tonnage presents a far more difficult problem. In the case of land transport, again, restriction is not easy save within fairly narrow limits. Railway rates are in most countries either determined by the State itself as owner of the railways, or regulated by the State where, as in Great Britain, the railways are in private hands. States normally desire to stimulate production and trade by keeping rail charges as low as possible; and State control, as far as it has any effect at all, is more likely to keep freight rates down than to raise them. Road competition for the lighter goods, and for certain classes of the heavier goods, and the competition of canals and coastwise shipping, also serve to prevent a restrictive policy aimed at maintaining charges at a high level. Only in the case of passengers is there a wide field for restriction; and the recent fusion of interests between railway companies and road transport undertakings in Great Britain serves at any rate to show that the railway managers are fully alive to the possibilities of action in this sphere. It remains broadly true that the prosperity of transport undertakings, and still more directly the volume of employment they are able to provide, depend on the volume of industrial (and of course also of agricultural) production. Restrictive policies in industry, therefore, hit directly at the prosperity of the transport workers. Moreover, there is a further tendency at work which makes it more than ever important to those engaged in transport that the volume of industrial production should be increased as rapidly as possible. The rationalisation of industry, we have

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seen, aims above all, in its productive aspects, at the reduction of costs by the adoption of the most efficient methods available. Now, the costs of transporting fuel and raw materials to the works, semi-finished products to other works in which they are to be further manufactured, and finished products to the places where they are to be used or consumed, form a very important element in the total costs of production for many classes of goods, and especially for the products of the heavy industries. Accordingly, those who set out to rationalise an industry always have their eye on the possibility of cutting down these particular items in the cost account. This may be done in a variety of ways-by building new plants nearer the sources of the bulkiest fuel or material needed, by linking up successive processes of production in a single works in order to save intermediate transport, or by carrying through the final processes of manufacture, such as assembling, in close proximity to the markets in which the goods are to be sold. Instances of all these types are easy to find. Our iron-works have long been grouped round the coalfields, because it was, in most cases, cheaper to carry iron to coal than coal to iron. But nowadays the economy in fuel consumption in the course of production is altering the conditions affecting the most economic localisation of the industry, and causing it to settle more in the areas where the iron is found, or near the coast, to which it can be brought cheaply by sea. Again, industrial technicians have found means of employing the waste gas given off in the blast furnace as a source of power for the subsequent processes of steel production; and this is tending to bring the production of pig-iron and of steel together within a single establishment. Or again} as parts of motor vehicles can be transported more cheaply and sometimes, across national frontiers, at lower rates of duty than complete cars, assembling factories are set up in the countries in which the customers live, even if the production of the parts is carried on in bulk at a single centre. Modern industry is seeking more and more to reduce the costs of transportation by cutting out unnecessary movements of goods. A combine is often able to supply customers with goods made near at hand, where under competitive conditions things

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were carried long distances, and goods of the same sort might pass each other on the railways. Much was done during the war to save unnecessary transport by regional schemes of distribution; and private business has learnt the lessons which Governments were compelled to teach it under pressure of war conditions. Economy in the use of fuel, which is one of the most marked features of recent technical progress, also reacts very greatly on the volume of goods to be transported; for coal by itself accounts for a very large proportion of the total volume of goods traffic on all the railways. It is, of course, fully as desirable to save wasted effort in transportation as in the productive process. There is no less strong a case for tationalising transport than industry. My point is, not that the tendencies which are reducing the amount of transportation involved in placing a given volume of goods in the consumer's hands are bad, but that those concerned in the transport industries have the ..strongest possible reasons for objecting to any policy which tends to restrict production. The traditional faithfulness of British shipowners to Free Trade has been largely due to their feeling that anything which restricts the free flow of commodities is likely to diminish traffic. It might, indeed, have this effect without decreasing production; but we can hardly expect the shipowner to believe readily that it would. What, then, should be the attitude of those who are engaged in the transport industries towards the monopolistic tendencies which are being strengthened by the movement of industrial rationalisation? It may be suggested, in the light of the foregoing argument, that they ought to offer uncompromising opposition to a movement which leads to these untoward results. But resistance to rationalisation is not in fact a practical policy, as the working-class movement in most countries has been quick to recognise-quicker than a large proportion of the employers. For, if industry continues to be conducted on terms of international competition, the country which rejects rationalisation will evidently run a serious risk of losing a large part of its trade; and if international combination and allocation of markets are to be the rule, the country that lags behind in bringing its 10

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methods of production up-to-date will be at a grave disadvantage in the bargaining for quotas and markets on which such co-operation is inevitably based. It is necessary to rationalise industry, because no industrialised country can afford to fall behind others in its endeavour to lower production costs. The practical issue is not whether industry shall be rationalised or not, but whether means can be found of countering the dangerous tendency towards under-production which rationalisation, under present conditions, tends to set up. Cheaper production ought to mean more production, and not merely more production in the aggregate, but more per head of the population, so as to result in a higher standard of life. If, instead of this, it leads to serious unemployment, then there is something very badly wrong with the economic system that permits such a thing to occur. What is wrong? In the first place, the motive to production under present economic conditions is not the total income generated by production, but only that part of it which takes the form of profit. Wages appear, in the productive process, not as incomes, but as costs, whereas profits appear as incomes. Wages, therefore, seem an evil and profits a good. But in fact both wages and profits are goods of the same sort-means of life to those who receive them. Of two possible policies, one may result in the distribution of £8oo in wages and £zoo in profit, while the other will distribute £I ,ooo in wages and only £IOo in profit. Under our present system the first of the policies is almost inevitably preferred, though it creates a total economic welfare, at the most, of only £I ,ooo as against £I ,Ioo, and the discrepancy is probably a good deal greater than this if due account is taken of the differing marginal utility of money to different receivers of income. Moreover, if the choice of the first policy results in unemployment, someone has to keep the unemployed; and they can, in fact, be maintained only out of the £I ,ooo, with the result that the profit-maker's £zoo is considerably diminished by taxation. Secondly, the costs of production and of non-production do not fall directly upon the same shoulders. When an employer decides to produce, he pays the cost of production, and the difference between this cost and

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his selling price is his profit or loss as the case may be. But nonproduction has its costs as well as production. These, however, fall only in part on the employer. He may incur charges in keeping his plant in order even when it is not in use, and he may have interest charges on borrowed money sunk in such plant which continue whether it is used for production or not. But that large part of the costs of non-production which consists of the maintenance of those who are thrown out of work falls, not directly or mainly upon him, but upon the entire community, with varying incidence according to the provision made for the unemployed and the methods of taxation adopted in meeting the cost. If the employer had to meet the entire cost of non-production, it would often pay him better to produce than to abstain from production. I am not, of course, suggesting that under our present economic system employers can in fact be asked directly to meet this extra cost. It would involve them, in many instances, in producing at a loss; and there is no known method, under a system of private enterprise, of making an employer produce if he does not wish to do so. It is, I think, highly desirable that when rationalisation of industry results in throwing men out of work, and the industry in question is in a reasonably prosperous condition; there should be compulsion to provide some sort of fund out of which at least the older workers who are displaced can be compensated for their loss of employment, and enabled to retire if they are too old to adapt themselves successfully to another calling. A few employers have made provision of this sort voluntarily on a limited scale. But it clearly cannot be made general, even where the industry can afford it, unless compulsion is applied. No fund of this sort, however, even if the State as well as the employers contributed to it, could possibly meet the case of those industries in which rationalisation is being applied as the means of rescuing many of the firms from bankruptcy and the industry itself from irretrievable decline. For industries which are in this state have no ability to bear additional charges; and any attempt to impose such charges upon them would only impede and perhaps altogether prevent their recovery from their

r.}o

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present depressed condition. Accordingly, the State must, in these cases, continue to shoulder the burden of the unemployment which is created by the adoption of new methods of production and new forms of economic organisation leading to a restrictive policy. I am not concerned with the question whether Unemployment Insurance-which is in reality not insurance at all, but a system of State payments financed by methods of taxation admitting of no theoretical defence-is the right method of providing for the needs of these disemployed workers, or whether some better method or methods could be devised. That is a different, though highly important, question; and I have certainly no space to discuss it here. My point is only that as, in one form or another, the State must bear the major part of the heavy costs of non-production, it too has a strong interest in seeing that restrictive practices shall be prevented from increasing and if possible eliminated altogether. But what are we to do? The demand for the products of most of the industries to which rationalisation is being extensively applied or recommended is, under present conditions, fairly inelastic. A fall in prices, unless it is very great, does not bring about any considerable increase in total world demand. It may, indeed, increase considerably for a time the proportion of the total demand that is met by the producers in a particular country; but if it does this without increasing total demand to any great extent, the chief effect must be in the long run to cause competing countries to reduce their prices too. When they do this, the same volume of trade as existed before the whole movement began will tend to be shared out in much the same way as at first among the rival producing groups, unless one of these has in the meantime increased or decreased its relative efficiency, in which case it may permanently gain or lose trade in relation to the others. The only noticeable result apart from this will be that prices will have been forced down in export markets, so that all the producing countries may be worse off at the end of the process than they were when it began. This inelasticity of total world demand is obviously the root of the trouble. Why, then, is the demand inelastic? Precisely because the controllers of production in the various countries

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choose, and under present conditions have to choose, the creation of a less rather than of a larger total amount of spendable income in the course of the productive process. £8oo wages plus £zoo profit is preferred to £r ,ooo wages plus £roo profit, though clearly the former produces both less goods and less demand for goods than the latter. Moreover, under our present topsy-turvy system, if by reducing wage-rates the same amount of product can be secured for £750 as was previously secured for £8oo, or even an amount of product less in value by anything up to £so, this will appear as a gain, because it will add to the £zoo of profit, though it will usually add less to profits than it takes off wages, and thus further reduce the amount of production and of purchasing power as well as worsen its distribution from the standpoint of human utility. Our present economic arrangements thus tend to put a premium on under-production and to make even under-production wear the appearance of over-production to the business man who has to strive to make both ends meet. Unless the world can find a way out of this tragic and ridiculous situation, the outlook for the next ten years is black indeed; for we may expect a rapid advance in the arts of production combined with a diminishing ability to take advantage of our own skill. It is, indeed, possible that a lucky accident may falsify these unhappy forebodings. If the Far East would cease from fighting and apply its full energies to the improvement of its own productive efficiency, it might become so huge a market for European goods as to set all our depressed industries working full time, and to absorb all the workers whom rationalisation could possibly displace. If the United States threw down its tariff wall and readily accepted European manufactures in payment of Europe's debts, a less spectacular but still considerable revival of European prosperity might follow. But it does not look at all likely that either of these events, or any other comparable with them in its potential effects, will occur in the near future. Moreover, even an event of this order would only counteract the effects of our economic troubles, and not finally remove their cause. I am driven to the conclusion that, even apart from the special

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types of unemployment which result from the general fluctuations of trade, the capitalist system in its latest phase of development is generating a new kind of unemployment likely to be even more far-reaching and disastrous in its social effects, unless the common sense of the peoples avails to enforce a radical cure. But is there a cure at all, however radical we are prepared to be if we can but find one? I feel sure there is, though I am far from believing that I have mastered the problem in all its complications, or know at all fully or in detail how we ought to deal with it. Broadly, I believe the answer is that in deciding whether to produce or to refrain from producing we must always take all the costs into account, including the costs of non-production as well as the costs of production in the narrower sense. We must get firmly into our heads the fundamental truth that human subsistence is a basic and unavoidable cost, attaching to non-production as well as to production, and that, accordingly, only the difference between what a man receives when he is at work and what he receives when he is unemployed, and not his total wage, can be rightly treated as a cost of production as distinguished from non-production. The fact that the cost of production and non-production falls largely upon different shoulders is irrelevant, from the standpoint of society as a whole; and the true lesson of rationalisation is that we must do our cost-accounting not only in terms of single businesses, however large, but even more in terms of the entire community. How can this truth be practically applied? A makeshift way would be for the State to set as many as possible of the unemployed to work, making things useful to the community, even if their value in economic terms amounted to less than the total cost of producing them, according to the current business reckoning. This would, I am sure, be a great deal better than the policy of unproductive doles which most industrial States at present pursue in dealing with their unemployed. But it would be a makeshift method, difficult to apply except as a temporary measure, and difficult even so, because of the relatively narrow range of services upon which the State can under present conditions readily embark, and the unsuitability

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of many of the unemployed for the execution of these particular services. What, then, is the alternative? My answer is that, if industry cannot produce at a book-keeping profit, it ought to produce at a book-keeping loss, at least up to the point at which the loss exceeds the costs of non-production. I am well aware that Lord Melchett made, some years ago, a somewhat similar suggestion when he proposed that the unemployment benefit now paid to workers out of a job in Great Britain should be used as a subsidy in aid of wages, and paid over to employers who, in return for it, would increase their output and employ more labour. The suggestion was laughed out of court, and freely criticised as unworkable, as indeed I think it was, in the form in which Lord Melchett proposed it. But the fact remains that Lord Melchett had hold of the right end of the stick. He had at least realised the impossibility, from the standpoint of the community as a whole, of neglecting the costs of non-production, and deciding whether to produce or not to produce solely on the basis of a comparison between selling prices and total costs. Lord Melchett's suggestion was unworkable, if it was so, not because it was wrong in substance, but because the economic system to which he was seeking to apply it was radically unsound. How, said his critics, are you to prevent employers from getting the subsidy in respect of workers whom they would have engaged even without it? The question would have been meaningless, and the objection invalid, if the employer in question had been, not a private firm, but the State itself. For there could be no possible injustice or objection to the State, or rather the whole community, subsidising itself in order to add to the aggregate of its wealth by increasing production. Lord Melchett proposed to apply a Socialist remedy while leaving the capitalist system undisturbed. His critics realised that this could not be done; and they preferred a capitalist system diseased to the application of a Socialist cure. I should like, then, to see the State become the employer and controller of industry over a wide field, in the sense of prescribing directly the forms and amounts of production, and accepting responsibility for its financial results. In fact, I hold

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that rationalisation can be applied to industry, without setting up a vicious circle of under-production and under-consumption, only if Socialism is applied too, and the policy of each business directed, not solely or mainly with a view to the profit of a particular body of shareholders, but in the light of all the costs of production and non-production alike, and with a view to the general advantage of Society and the creation of the largest possible total volume of economic wealth, subject only to the claims of non-economic goods, such as increased leisure or more life-giving education. I do not for a moment suggest that the application of this broad principle would by itself solve all our troubles, though I believe it would be found to be the key to a good many of them, and those the most obstinate and deeply rooted. I do not, for example, suggest that there are not other causes of unemployment apart from that which I have been discussing, or that these do not need handling by other methods. There is, for example, the problem of general trade fluctuations, which is responsible in Great Britain today for probably about a third of the total volume of unemployment and for most of the increase during the past six or nine months. This, as I have explained, falls outside the scope of this paper. There is, secondly, certainly a considerable body of unemployment which is the direct result of the maldistribution of economic resources, and of the slowness of our economic system in adapting itself to changing needs. Plant built to produce one class of goods cannot usually be diverted to producing another; and, as we have seen, human beings are also very apt to lose their adaptability as they grow older. There are, further, serious difficulties in the way of migration both across national frontiers and within a single country. Consequently, if the currents of demand change, it takes a long timetoadapt either the human or the material factors in industry to the new needs; and the difficulty of adaptation is obviously greatest if the need coincides with and is accentuated by the dislocation caused by a world war and highly defective command of the monetary factors in the production and distribution of wealth. These difficulties would remain, even if we were handling our

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45 problems under Socialist instead of capitalist control, and from a Socialist instead of a capitalist point of view. But I believe they would, in that case, be infinitely easier to master. For we should then be endeavouring to rebuild industry with the right proportions in view of modern needs in accordance with a definite plan, instead of trusting to the blind forces of individual profit seeking somehow to create a harmonious structure and to fit each available brick into its proper place. We should be setting out consciously to develop new industries, instead of hoping that they would somehow grow up of themselves. Of course, the view which I have put forward in this paper is finally and utterly inconsistent with the underlying philosophy of Free Trade, in the theoretical form in which British economists have for over a century preached it to the world with a success considerable up to the third quarter of the last century, and thereafter steadily and rapidly diminishing. For, wherever protectionists may be wrong, they are certainly right when they contend that the failure of an industry to survive under Free Trade conditions cannot be taken, even from the strictly economic standpoint, as a final and conclusive argument against its utility. The total cost to the community of letting an industry die may easily be greater than the cost of keeping it in being; and only a country able, by reason of its superior economic efficiency, to pick and choose among industries fully enough to keep its population employed (apart, of course, from temporary unemployment due to general fluctuations of trade) could possibly have lost sight for long of this obvious fact. It is not always an economic advantage to buy in the cheapest market: it is a positive economic disadvantage if the result of doing so is to throw so many people out of work that the cost of their maintenance exceeds the amount by which the price in the cheapest market is lower than that at which the goods could have been made by these disemployed. Indeed, the case for a protective duty has often been put precisely on this ground. It may act as a means of keeping an industry alive when it would otherwise perish; and the cost which it involves in higher prices to the consumer may be in a particular instance less than the loss which will be incurred by the community if the industry is 1

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allowed to disappear. It is pertinent to point out in reply to the protectionist case that taxes on commodities are apt to be most unfair in their incidence, and that their desirability of keeping a particular trade alive is no sufficient reason for making the consumers of its products bear the cost of doing so. Tariffs may be an unsound way of achieving a desirable result; but the objection to tariffs does not destroy the force of the argument which underlies the advocacy of them. What I am saying in effect is that our present method of determining the production and pricing of commodities in accordance with the total costs incurred by firms in their manufacture is radically wrong. It is wrong for a very simple reason -because it treats the wages of labour as an element in cost of production just like any other element. Wages in reality stand on quite a different footing from other costs. For, whereas most other costs are merely outgoings, wages are incomes as well. A simple contrast should suffice to make my meaning plain. If I can make a ton of steel with less coal, the result is to achieve a real economy in production. If I can make a ton of steel with less labour, then too a real economy is achieved. But if I use the same amount of labour, merely paying for it a lower wage, or if the price of the coal I buy falls merely because the miner gets a lower wage, there is no real economy at all. Yet in ordinary parlance we shall say in all these cases that the cost of production has been reduced. It is true that in each case the money cost has fallen; but the real cost, which is from the social standpoint the vital factor, has fallen only in the two earlier cases. In the two latter it remains unchanged. And this is a vital difference, not only from a theoretical, but also from a practical point of view. In general, British industry pays higher wages than its continental competitors. Unless the higher wages are offset by a correspondingly greater efficiency of labour, this tends to raise British money costs of production above the continental level. Similarly, German money costs tend to be higher than French or Italian, other things being equal, and European money costs than Japanese. But does this mean that real costs are also higher? In my view, it does not. The real costs depend upon

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the efficiency of production, and not on the amount received as wages by the workers. The workers' income is not a means to production, but, at least equally with the employers' profit, the end for which production exists. A higher wage should not, therefore, be treated as a higher cost, but rather as something to be provided, in the fullest measure possible, out of the total product of industry as a whole. It would pay Great Britain handsomely to market her steel wherever necessary at a price determined, not by its total money cost of production, but by this cost less the difference between the British wage-rates and those paid in the principal competing countries. But this would not pay the British employer, unless he received from the State a subsidy equivalent to the difference. More than one country has at some time adopted this method of subsidy; and it has been often put forward in Great Britain, especially as a way of meeting the farmers' difficulties. In certain cases, it may even be the best way of dealing with a particular difficulty; but it is apt to result in the making of large unnecessary presents to the wrong people. The coal subsidy of 1925 in Great Britain did this. The entire situation would be immensely simpler if the State itself were the employer. For then, as we have seen, the State would only have to pay the subsidy to itself. This, of course, would not relieve the State from the necessity of finding the money. In part, this would come from the savings on other services, such as the maintenance of the unemployed; for the object of the entire process is to increase production and get the unemployed back to work. For the rest, the necessary resources could only come out of taxation, levied, of course, not only on incomes derived from British industry, but also on non-industrial incomes and on incomes originating abroad. Only if these sources of money proved inadequate would it be necessary to conclude that British wages were in excess of Great Britain's capacity to pay. A reduction in wages would be the last, and not as now the first, resort of the industrialist in trouble. But-and here we approach the most obvious difficultywould not the adoption by the various nations of this policy of

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selling goods when necessary at less than total cost result in a gigantic development of dumping over the world as a whole? We can hardly suppose that, if one country seriously began it, others would not be impelled to follow its example. What else indeed could they do? We should have then what is now called 'dumping' on a greatly intensified scale. The policy, practised to a growing extent already by trusts and cartels, of charging in each section of the market what the trade will bear, almost without regard to production costs, would be greatly extended and intensified. Well, why not? If more goods cannot be sold in the world at present prices, though the world has the capacity to create far more, prices will have to come down to the point at which more will be bought, and this can only be achieved on the condition that prices are not brought down by reducing wages and other incomes and so destroying the purchasing power which must be the source of the additional demand. Demand, I have said, is at present somewhat inelastic for most goods. But it will become elastic in the proportion in which we set more people to work without reducing wages, and thus call additional demand into being. Subject to one condition, any level of prices which results in under-production is obviously too high. The remedy is to reduce it until the whole volume of available productive resources has been absorbed. Actually it may be better to do this, not by reducing prices in general (a process which may set up other unfavourable reactions), but by making money more plentiful without increasing prices, which comes to the same thing. But to follow up this point would take me too far afield. The one condition is this. There may be in the world a lack of balance in productive power. The world may be equipped for producing relatively too much of some things and too little of others. In that case, the proportions need to be readjusted; and it is not desirable to bring down the prices of the goods which are in potential over-supply to the point at which the whole potential supply could be sold. The price reduction and the supply must be cut short at the point deemed to be approximately that of equilibrium with the rest of the productive system.

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Though the case that I have been arguing goes against many preconceived ideas, surely its underlying truth is plain. To reject it is to hold that there can really be such a thing as general over-production-a ridiculous and self-condemnatory conclusion. Given right economic organisation, there must be a market for all we can produce within the limits set by our desire for leisure; and it must be worth while to satisfy the whole of that demand. It cannot be true that there exist in the world large material resources and large bodies of men whose productive capacity it is simply not worth while to use. But surely, it may be said, this talk of the need for lower prices is ridiculous in face of the happenings of the past year. Has not the world's chief trouble during this period been that prices have been falling too fast? Are not the producers of wheat, wool, cotton, tin, rubber and a hundred other commodities lamenting the disastrous fall in the prices of the goods they have to sell? Are not the manufacturers of Europe lamenting the consequent fall in the purchasing power of the countries which are mainly suppliers of foodstuffs and raw materials? That is true enough; and I am far from suggesting either that the prices of these particular commodities ought to fall further, or that a further fall in the general price-level is to be desired. Indeed, I would sooner see the general price-level rise, and the prices of foodstuffs and materials rise both absolutely and in relation to the prices of manufactured commodities. The fall in the general price-level during recent years is, I believe, due mainly to monetary causes, and demands a remedy in terms of monetary policy. The fall in the relative prices of foodstuffs and materials is due partly to the failure of the industrial countries, which are the chief consumers, to utilise their own productive powers to the full and so raise their standard of life, and partly to the greater difficulty of combination to hold up prices in the case of foodstuffs and materials than in that of manufactured articles. A determined policy of higher production on the lines suggested above in the industrial countries would at once improve the demand for primary products, and react favourably upon their relative price. This in turn would stimulate the demand for manufactures in the countries which

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vr.

export chiefly foodstuffs and materials, and would thus diminish, if not wholly remove, the need for selling manufactures at less than total cost. I am, of course, aware that the views put forward in this paper will be hotly contested, and even dismissed by many of the orthodox-in the ranks of Labour as well as among economists-as merely foolish. I am, indeed, probably wrong on many points; but I believe I am right on the fundamental issue. It is, I think, true that our present economic syst.em is working out more and more towards a policy of limited production, and that, in view of the rapid growth of technical efficiency, this policy is certain to result in an even more serious growth of unemployment. This tendency is inherent in a system which (a) takes as its motive, not the creation of the maximum total utility' but only of the maximum surplus over cost; (b) includes the entire wage of labour as a cost, and ignores its importance as income-the source of economic demand; (c) ignores in its calculation the costs of non-production, or, in other words, the maintenance of those who are unemployed or disemployed by reason of its policy; and (d) abstains from production unless the result of this incomplete and misleading calculation makes it more remunerative for the owners of a business to produce than to abstain, ignoring altogether the question of expediency from the standpoint of the community as a whole. In other words, under modern conditions the capitalist system leads increasingly to the disemployment of labour; and there is no means of counteracting this tendency short of the adoption of a considerable measure of practical Socialism.

VII WAGES AND EMPLOYMENT THE classical theory of wages represents the employer as constantly pushing his willingness to employ labour to a marginal point determined by its productivity in relation to that of the other factors of production. The employer, we are told, is always seeking to combine these factors in the most economical proportions, in order to reduce his costs to the lowest possible point. Consequently, it appears, the cheaper labour is, the more of it will be employed, both because, at any given level of production, more of it will be used and less of other factors, such as land or machinery, and also because cheaper labour, by lowering total cost, will enable the employer to lower prices, and so produce and sell more goods. Low wages, looked at from this standpoint, appear as an unmixed blessing, and as the means to greater production and therefore to greater wealth. Every economist, however, is well aware that this argument cannot be accepted at its face value. It involves at least three evidently fallacious assumptions. The first of these is that the productivity of labour bears no relation to the amount of wages paid to the labourer. The second is that the elasticity of demand for commodities is unaffected by the level of wages. And the third is that labour can be treated as a mere aggregate of homogeneous units, and differences of quality between labourer and labourer simply ignored. Nor is this, in practice, by any means the total of the fallacies involved in the familiar crude generalisation that high wages mean less employment, and low wages more employment. It may often be true that a particular employer, or group of employers, could get more trade on profitable terms if they could lower wages, without any corresponding action on the part of I5I

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their competitors; but it may be quite untrue that a general lowering of wages, over the whole competitive field, would have this effect. In this as in many other parts of the economic field it is fallacious in the extreme to argue directly from the particular to the general. What, then, can we say with safety about the relation between wages and employment? We had best say nothing at all, until we have attempted to define our terms more clearly. WAGES

The dual character of wages is apt, unless we are careful, to introduce a great deal of confusion into the argument. For wages are, from the employer's standpoint, a cost, and, from the workman's, income-a means of life. What matters to the employer is not the rate of wages that he pays, but the return which he gets for each shilling, or mark, or franc, or dollar, in terms of productive result. And, subject to certain reservations, what matters to the worker is not the rate of wages either, but the amount of earnings he receives in return for each unit of energy he is called upon to expend. These reservations are, however, important. The worker has usually only his labourpower to purchase him the means of life. It will therefore not profit him to sell a very little of it even at a high rate: he must sell enough to give him a tolerable living. In other words, it will not pay the worker to be casually or discontinuously employed, except at a very high rate of remuneration for each unit of effort that he expends. There is a further reservation, which applies to both parties, but does not affect them quite in the same way. What matters to the employer, fundamentally, is not the absolute cost of labour in terms of its productive efficiency, but this cost in relation to the conditions on which he is able to sell his goods. And what matters to the workman is not the absolute sum of money which he receives, but the purchasing power of this money over the particular sorts of goods and services that he wants to buy. In other words, the willingness of the employer to pay wages and the willingness of the workman to work for a given wage are

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1 53

both affected by the level of prices. But not by the prices of the same things, or in the same proportions. The workman is interested primarily in the cost of living, and the employer in the prices of the particular goods he makes or uses at the particular stage of production or distribution with which he is particularly concerned. It is often said, by way of contrast, that the employer is interested chiefly in wholesale, and the workman in retail, prices. But this is not a fair way of stating the contrast. Very broadly, we may measure the purchasing power of wages by means of a generalised index number, purporting to measure the 'working-class cost of living'; and this will work well enough as a rough approximation, though it will tend to break down if we attempt to apply it to the salaried and professional classes. But in the case of the general body of employers there can be no even reasonably correct approximation by means of a single index number. For each group of employers is affected quite differently according as a movement in 'general prices' results from varying movements in the prices of different commodities and services. Moreover, labour is, from the employer's standpoint, only one among the factors of production ; and his willingness to afford employment is affected by the prices of all these factors. It may be true enough that if labour becomes relatively dear, and some other factor of production that can be substituted for it relatively cheap, there will be a tendency to use more of the latter factor, and less labour. But this substitution cannot operate over anything like the whole field of productive costs. An employer cannot usually make use of less labour and more raw material, or vice versa; and only within certain limits can he use less labour and more machinery, or more labour and less machinery. Commonly, the employment of more of one factor involves the employment of more of others, even if the relative proportions are changed. And a fall in the relative price of, say, machinery or raw materials may, accordingly, often mean the employment of more and not less labour, even if the price of labour rises absolutely as well as relatively. Indeed, the total employment of the various factors of production commonly moves in the same direction, and not in opposite directions; li

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and this tendency is usually too strong to be offset by changes in the relative prices of the various factors. The different meanings of the term 'wages' become especially important as soon as we attempt to look at the question of wages and employment from any international standpoint. For attempts to compare the wages of workers in different countries have, so far, usually been based on one of two principles, neither of which can yield a fully satisfactory answer. The first method, adopted in certain calculations published regularly by the International Labour Office, attempts to measure and compare the purchasing power of wages in different countries. It is a comparison of 'real wages', taking account of the difference in the cost of living, and attempting, by a somewhat rough-and-ready method, to allow for the differing standards and composition of working-class budgets in the various countries. The second method is to express the wage-level of each country in terms of gold, or in a dollar equivalent, without regard to differing pricelevels or standards of consumption. The first of these methods regards wages purely as incomes, and thus comes nearest to the working-class point of view. The second comes nearer to regarding them, as the employer does, as costs; but it ignores the differences both in the efficiency of labour and in the amount of effort demanded from the worker in return for his wage. There is the further difficulty that countries do not compile their wage-statistics on a uniform basis. Some countries work on a basis of wage-rates, and others on a basis of earnings; and there are other difficulties, such as the adoption of hourly, daily or weekly standards, and the classification of the available figures. Some countries have separate figures for skilled and less skilled, and for male and female, workers; while others lump all the industrial figures together into a general estimated average. In face of these differences, and of the imperfections of the statistics themselves, it is exceedingly difficult to institute any reliable comparisons of wages on an international basis, or to reach any comparative conclusions concerning the effects of high or low wages on the international incidence of unemployment. I have spent a good deal of time in recent years in vain attempts to arrive at useful results by the comparison of the available

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55

figures; but my only conclusion is that, from this as from many other points of view, there is urgent need for further progress in getting countries both to compile and publish fuller statistics of wage-rates and earnings, and to adopt a more nearly comparable basis for their figures. The fact, however, remains that, though the figures are capable of great improvement, no such improvement can possibly yield a purely statistical measurement of the relative levels of wage-costs in different countries. It may be possible to measure the amount of gold wage in a ton of crude steel in Germany, Belgium, France, Great Britain, and the United States; but it will certainly not be possible to present a clear picture of the rel~tive cost of a unit of labour efficiency in general in these countries. Indeed, the very conception is highly abstract. For the wage-cost of production depends not only on the efficiency that belongs to the labourer in relation to his wage, but also on the efficiency of the utilisation of labour-that is, of the plant and machinery with which the labourer has to work, of the management that gives him his orders, of the buying and selling mechanism, and of the total economic system within which his work is carried on. It is hardly possible to hope for complete clarity of expression about so complex a matter; but, as far as in me lies, I shall use distinct terms for the various senses of the term 'wages' that have been mentioned above. When I am speaking of the amount for which the labourer has contracted to work for a certain period of time, or (in certain cases) to perform a certain piece or stint of work, I shall speak of wage-rates. When I refer to the amount actually earned by the labourer over a certain period of time, with or without full employment, I shall speak of wage-earnings, or simply earnings. When I am dealing with what either of these will buy, I shall speak of real wage-rates, or real earnings, as the case may be. When I am discussing wages from the employer's standpoint, I shall speak of wage-costs, meaning thereby the actual money cost attributable to labour in any given unit of production. For the purpose of comparing wages internationally in terms of purchasing power, it is best to speak of computed cost of living wages, and when the comparison is on a basis, not of

rs6

ECONOMIC TRACTS FOR THE TIMES

CHAP.

purchasing power, but of gold equivalents, to speak of gold wages. But it is not possible to speak with precision of real wage-costs either nationally or internationally; for no means exist of measuring either. Nor can we speak of 'a.: ages per unit of labour productivity; for the intrinsic productivity of labour cannot be separated from the efficiency of plant or management. Some of this may seem to be an instance of unnecessary splitting of hairs; but there has been so much talk about an undefined something called 'wages' that I would sooner run the risk of making too many distinctions than too few. EMPLOYMENT

Turn now for a moment to the other factor we have to consider. We are dealing with the relation between 'wages' and 'employment'. What is employment? Clearly it cannot be measured by the number of persons employed; for their employment may be more or less continuous and intensive. In one country or industry employment may be spread over a large number of persons by means of casual labour or systematic short time, whereas in another the same volume of total employment may be shared out among a far smaller number of individuals, working full time or, perhaps, adding overtime to the ordinary working week. The weekly hours of labour may be longer in one country or industry than in another. And, what is hardest of all, there may be very different amounts of labour in an hour's work, accordjng to the intensity with which the labourer is driven, and to his own habits of industry or the reverse. This intensity of labour, be it noted, is something different from its productivity, as Marx long ago realised. A workman is more productive if he produces more, under given conditions, with less expenditure of effort, but· not if he produces more in an hour by working harder than before. Or, at all events, the term 'productivity' means two quite different things in these two cases. It is better, therefore, to use two different terms, and to speak of the productivity of labour in the first case, and of its intensity in the second. It follows from what has been said that the amount of employ-

VII.

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1

57

ment and unemployment cannot be measured simply by deducting from the available population the numbers totally unemployed. Account must be taken of short time as well-as both Germany and Great Britain do, in varying degree, in their systems of unemployment insurance. But much discontinuity of employment escapes measurement, even in these countries, and far more elsewhere. Over the world as a whole, unemployment statistics are still in their infancy; and in some great countries, such as the United States, it is not even possible to make an approximately reliable estimate of the numbers in and out of employment, much less of the extent of short-time and casual working. Moreover, such a country as France, which imports labour in prosperous times, cannot have unemployment statistics which measure the real variations in its demand for labour. The unemployed of French industry are in part dispersed over the countries from which they would have migrated to France if there had been a better demand for their services. In these circumstances, the size of the wage-bill, corrected for any variations in the rates of wages/ may furnish a better measure than the numbers out of work or the volume of employment. Better statistics of total wages paid, collected at more frequent intervals, are therefore greatly to be desired as a means to the more satisfactory correlation of industrial phenomena. In the following pages, when I speak of unemployment generally, I shall mean the total amount of time lost by available workers owing to the lack of opportunity to work, whether this takes the form of total or partial unemployment for the individual; and when I speak of employment, I shall mean the total number of man-hours worked, whether by a larger or smaller number of workers. It will not be possible to find a phrase that will denote the effects of an increased or decreased intensity of labour within the hour of sixty minutes; but it will be made clear when this factor is being brought into the account. Having thus done something to clear the ground, I can now return to the main problem before us. Our object is to determine, in general terms, what relation, if any, exists between 1

And for longer periods for the migration from one trade to another.

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CHAP.

'wages' and the volume of employment. Let us begin by looking at the question from the standpoint of a single manufacturer. For our hypothetical manufacturer, the question of the worthwhileness of production-or of more or less productionpresents itself in the shape of a relationship between estimated costs and expected sale prices. Any reduction in cost makes it worth while to produce at a lower sale price or more worth while to produce at the same sale price. This applies equally to wage-costs and to any other element in cost, such as a reduction in the prices of materials, or in the rate of interest payable on bank overdrafts. Now, a reduction in wage-rates is fairly certain to result, immediately, in a reduction in total cost; for even if the lowered wage-rates lead to a fall in the efficiency of labour, this is unlikely, at least in the short run, to be equal to the fall in the rate of wages, unless this rate was exceptionally low before the reduction took place, or unless it provokes a resentment resulting in deliberate 'ca'canny' by the workers. To the individual employer, then, a reduction in wage-rates is apt to appear as a ready means to more, or to more profitable, production. This, however, does not apply universally. Certain employers deliberately pay relatively high wage-rates in order either to secure their pick of the most skilled labour, or to persuade their workers to stand a pace of work more intense than the ordinary. Such employers may, or may not; welcome a general fall in wage-rates which will enable them to reduce their wage-costs while preserving the same relative superiority as before; but they will not desire to reduce this superiority, for fear of losing their comparative advantage in skill or pace of work. A reduction in wage-rates, applicable only to their own workers, will accordingly not attract them. But such employers, it must be admitted, are still the exception. Let us now widen our example to embrace, not a single firm, but the whole of a trade or industry within a given area of collective bargaining. The body of employers within this area will be likely to see much the same advantage in a reduction of wagerates as we supposed would appeal to a single employer, especially if their products are in competition with those of other employers outside the range of the collective bargain in ques-

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59

tion. Thus, if the employers in a particular trade in Lancashire, or in Germany, can reduce their wage-rates in comparison with competing employers in London, or in Great Britain, they are apt to see in this an advantage which will lead either to more, or to more profitable, production. For they can hope that the lower wage-rates will not, in the short run at least, be offset by decreased productive efficiency; and they can look both to capturing some of their competitors' trade, if they choose to reduce prices, and perhaps to securing the benefit of an increased total demand, or, even if they leave prices unchanged, to driving their previous amount of trade under more profitable conditions. Some of these expected benefits clearly turn on employers in other areas of bargaining not being able to make, or not making, corresponding reductions in wage-rates. If the reductions become universal, there is no reason to suppose that the trade will be shared out in different proportions than before, except to the extent to which wages form, in the different areas, a different proportion of the total costs of production. But even if the proportions of trade are unchanged, the total amount may be increased; and this will clearly happen if prices are reduced when costs fall, and the commodity in question is in elastic total demand. The extent of the gain will then depend on the degree of elasticity in the total demand, except in so far as wages form differing proportions of total cost in the case of the various producers. But we must now widen our example still further. We have been speaking so far solely of the conditions affecting a single product, and assuming a change in the wage-rates of the industry producing the product without any corresponding change in other industries. We have now to see what will happen if the change in wage-rates becomes general over the whole field of employment, or at least over a large number of different occupations. Where wage-rates are reduced in a single industry, the effect may, or may not, be a reduction in the total wage-bill. This will depend on the policy pursued by the employers in the industry, and on the elasticity of demand for the product.

16o

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Where the employers concerned choose, and are able, to leave prices unchanged, the result will always be a fall in the total wage-bill; for they will certainly sell no more than before, and they may sell less in consequence of the fall in the purchasing power of their own employees. This latter factor is likely to be relatively unimportant if the change is confined to a single industry, unless the industry is largely localised and sells most of its product in the local market. But clearly more will not be sold; and accordingly the total wage-bill is bound to fall. If, however, prices are reduced, this does not follow. But, normally, the total wage-bill falls in this case, unless the elasticity of demand is greater than unity-i.e., unless purchasers are willing to spend an increased total amount of money in buying the goods in question at the reduced price. This is not likely to be often the case, except where trade is gained at the expense of competitors. When this condition applies, a powerful stimulus will be applied to these competitors to bring down their prices either by reducing the wage-rates of their workers or by other means, with the result that the gain secured by the original wage-reduction will be inherently unstable. Only when the elasticity of total demand is greater than unity is the total wage-bill likely to be durably increased. And this, in the case of a single industry, is likely to be a very rare occurrence. As soon as we think in terms, not of a single industry, but of a wide group of industries, or of industry as a whole, a fresh set of considerations presents itself. For it is no longer possible to ignore the direct loss of purchasing power due to the fall in wage-rates. This will be offset only if, over the whole range of employment affected, the elasticity of demand proves to be greater than unity, in face of the fall in individual incomes. In other words, prices must be reduced enough to persuade those in employment, though their wage-rates have been reduced, to buy enough more, not of one commodity, but of all those affected taken together, to cause enough additional employment to bring the total wages-bill up to the old level, after allowance has been made for the demand of those brought back into employment by this means. But this is a most unlikely supposition; for a general fall of wage-rates, even accompanied by a corresponding

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fall in prices, is likely only to leave demand at the old level as far as wage-incomes are concerned. There remains, of course, the possibility that demand will be increased by larger purchases out of incomes other than wages. But, unless prices are reduced, there is no reason to anticipate any increased demand except from one source-the profits which have been increased at the expense of wage-rates. And it is most unlikely that the increased demand from this source, being merely the result of a transference of income from wages to profits, will exceed the loss of demand from the reduction in wage-rates; while, if prices are reduced, it is again unlikely that, over the whole range of industry, the increased demand from incomes other than wages will exceed the reduction in demand from wage-incomes, unless the fall in prices is considerable. May it not, however, be considerable enough to achieve this result? Here we meet again the vital distinction between different sorts of prices. The only change in prices that will affect ultimate total demand is a fall in retail prices. But the change in wage-costs will react largely on the prices of materials and manufactures at the wholesale stage. It will doubtless, if it is generally spread, react on retail prices as well; but all the evidence goes to show that it will not react upon them as strongly or as swiftly as upon wholesale prices of materials and manufactures. Accordingly, it is likely that only a part of the fall in wage-costs will be reflected in retail prices, and that there will be a time-lag before even this part is fully so reflected. It is therefore probable that the elasticity of retail demand (upon which other demand ultimately depends) will be less than unity, and that the total wage-bill will fall. This is not to say that there will be no increase in employment, but only that the increase will not be enough to make the total wage-bill as large as before. It appears to follow that, save in very exceptional circumstances, a fall in wage-rates over all occupations (or over a wide group of occupations) in an area will be likely to lead to a reduction in the total wage-bill, unless the reduction is made in one area and not in others, so that the area in which wage-rates are reduced is enabled to capture a large share of its competitors'

162

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CHAP.

markets, and by this means to achieve an elasticity greater than unity in the demand for its products. It is thus not denied that one country, or economic area, can increase the amount of employment within its borders, under certain conditions, by bringing about a fall in wage-rates which does not extend to its competitors. It may even, under exceptionally favourable conditions, increase by this means the total amount of its wage-bill, provided that the whole reduction in costs is passed on to the consumer in reduced prices, and not retained in order to raise profits or eliminate losses. But the realisation of this condition depends on a number of circumstances which are by no means safe to reckon upon. The capture of trade from competitors must be large enough to offset and counteract a fall in demand which will otherwise, owing to the difference between wholesale and retail prices, tend to occur in the home market, and still to leave enough surplus to make the net expansion greater than unity. And success, even so, depends on a passive acceptance of defeat by the competitor countries or areas, without any success on their part in either cutting down their own wage-rates, or by other methods reducing their prices. In fact, of course, the cutting down of wage-costs in one area tends to set up a powerful movement towards their reduction in others. This is true, whether the reduction is achieved, in either case, by cutting down wage-rates or by other means. If one area cuts its wage-rates, other areas will try hard either to follow suit, or to reduce their costs by improved mechanisation, better selling methods, or even bounties or subsidies in the last resort, or perhaps by higher tariffs designed to protect their own home markets and give improved opportunities for export dumping at their home consumers' expense. Commercial gains secured by stealing the trade of rivals are always precarious; and they are most precarious of all when they are secured by reducing wage-rates, both because the policy is likely to react adversely on the home market and because, in the long run, it is likely to lead to inefficient production. While, therefore, it may, in certain cases, lead immediately to an increased volume of employment, or even, in very exceptional circumstances, to an increased

VII.

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total wage-bill, it is far more likely in the long run to lead to diminished employment as well as to lower earnings. It is, moreover, from the international standpoint, a most disastrous policy, in that it is calculated to give rise to a world movement for lower wage-rates, without any compensation in an increased world-total of employment. Throughout the foregoing argument, the question of the effect of reduced wage-rates upon efficiency has been touched upon only in an incidental fashion. It is, however, vital. Wagerates react upon efficiency in two ways: through their effects upon the workers and upon the employers. In the case of the worker, reduced wage-rates need have no adverse effect, provided that they are accompanied either by a rise in earnings enough to offset them; or by an equivalent fall in the prices of all the goods and services which enter into the expenditure of the workers concerned. But reduced wage-rates will lead to increased earnings only if they lead to further employment of those who were previously under-employed. The realisation of this result clearly depends upon the achievement of a larger demand. It is exactly the same case as we have been examining already; for we have defined increased employment to mean either the employment of additional workers or the fuller employment of the same number of workers. It may bein my opinion it is-usually a better thing, both from the standpoint of the workers and from that of the efficient conduct of industry, to concentrate a given volume of employment upon a limited number of workers rather than to share it out among a larger number at the cost of systematic under-employment. But this question is not germane to our present argument; for this concentration, or its opposite, can take place at any level of wage-rates. The reduction of wage-rates cannot increase earnings unless it leads to an increase in the volume of demand; and the conditions under which this can, and cannot, happen we have examined already. We are left, then, with the second alternative, of a fall in the prices of all the goods and services which the worker buys sufficient to offset to the full the fall in his earnings. But this is most unlikely to be secured, not only because of the tendency

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of retail prices to fall less than wholesale prices, but also because there are important fixed items of working-class expenditure which are not likely to fall at all (e.g., insurances, and rents under present conditions), and others likely to fall much less than general commodity prices (e.g., taxes and rates, and probably a good many services). Even, then, if a fall in wage-rates produces no considerable immediate reactions on working-class efficiency, it is likely to react on it in the long run, by reacting upon the standard of living-unless, of course, the fall~ more than offset by an increase in the social services provided by the State out of general taxation raised largely from non-wage mcomes. Under modern conditions, however, the effect upon the employer is likely to be more direct and disastrous than the effect upon the worker. For there can be no doubt that, all the world over, high wage-rates, wherever they have been enforced, have been a most powerful stimulus to industrial efficiency. The mechanisation of industry has been pushed furthest, and the total cost of production most reduced, whenever, over a considerable period of time, employers have been compelled, either by State or Trade Union action, or by scarcity of labour, to pay high rates of wages. It is at least plausible to suggest that, in the United States, high wages have been the most powerful single factor favourable to intensive mechanisation, and that, in Great Britain during the nineteenth century, the pressure of the Trade Unions for higher wages was an outstanding cause of the superior efficiency of British over continental methods of production. It is sometimes suggested that these relatively high wages were purchased only at the cost of a larger volume of unemployment than would have existed if wages had been lower. But there is absolutely no evidence in support of this view; for there is nothing to show that countries with high wage-rates have had more unemployment than countries whose wage-rates have been lower. I am not asserting dogmatically that this is not the case; but I do affirm that there is no body of evidence to show it to be so. Indeed, on the face of the matter, the opposite view has-a good deal more to support it. In general, countries with high wage-

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rates have increased their production and trade most rapidly, and have shown the greatest capacity to absorb an expanding population. This is true of Great Britain, of the United States, and of Germany; and, if Belgium appears to be a case on the other side, the exceptionally low cost of living in that country must be taken into account. Now, a reduction of wage-rates presents itself to the employer as a means of reducing his costs without using his brains. It removes a powerful stimulus to improved plant efficiency and business organisation. It may, in the short run, enable a business to survive without adapting its methods to the most modern technical improvements; and it almost always presents itself in the first instance to the harassed employer as the easiest way out of his difficulties. The call to scrap obsolete plant is often unwelcome; and improved business organisation often presents itself to the employer as the painful necessity for learning a new and difficult technique, or at least for an unwonted use of the faculty of imagination. In modern times, it often demands as well some sacrifice of the independent isolation of th,e individual firm; and business men, cradled in individualism, are often exceedingly reluctant to co-operate, or to sink their rivalries, or to abandon a tradition of secrecy and self-sufficiency that is out of tune with modern industrial conditions. The alternative of reducing wage-rates is apt, in practice, to be far less unpleasing to the business mind; and it has the additional attraction of offering the more immediate results. For, as we have seen, reduced wage-rates within a restricted field will often produce, in the short run, higher profits or more production, or even both, at the cost of ultimate loss, whereas the results of business reorganisation and improved plant efficiency take longer to harvest, though they are far surer in their lasting effects. There is, accordingly, on all counts a very strong balance of argument against any attempt to combat unemployment by the method of reducing wage-rates. The case against doing this is strongest of all from the international point of view; for a successful campaign to reduce wage-rates in one country is exceedingly likely, under modern conditions, to usher in a general campaign for their reduction in all countries. A far better way

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of combating unemployment would be an international agreement to raise wage-rates, and so increase the volume of purchasing power in accordance with the modern expansion of productive capacity. This, of course, does not mean that money rates of wages can be, under all conditions, absolutely sacrosanct. Workmen would be even less ready than employers to agree to a permanent stabilisation of existing money rates; and there are also bound to be changes in the relative levels of wages from trade to trade as methods and fashions change. There is, moreover, the changing value of money to be taken into account. Thus, during recent years, a fall in prices throughout the world has caused the real value of any given wage-rate, fixed in terms of money, to appreciate. In some cases, where wage-rates have been regulated automatically under a sliding-scale based upon the cost of living, the purchasing power of earnings (in default of fuller or less full employment) has been only maintained; while in other cases, especially in trades dependent on export, wage-rates have sometimes been reduced by more than the cost of living has fallen. But, over industry as a whole, the effect of falling prices has usually been to increase the purchasing power of the earnings payable for a full week's work. In face of increased unemployment and under-employment, this has often happened without any increase in the actual real earnings. of the individual, or been accompanied by a fall in these real earnings; and it has certainly not involved an increase in the aggregate real earnings of the working class as a whole, or at least in real earnings per head. It has, however, tended to increase effective costs of production to the employer, by exacting from him a wage-rate which absorbs a larger proportion of the total selling price of his goods. He has, other things being equal, to give a larger quantity of his goods in return for a given quantity of labour. Other things, however, are not usually equal; for, largely under pressure of these wage-rates, the employer has in most cases been making considerable efforts to improve his utilisation of the labour which he employs. He has pushed mechanisation further than ever before, has sought means of cutting down redundant business expenses, and has succeeded in increasing

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the amount of production quite out of proportion to any increase in the quantity of labour employed, and often while actually using a greatly diminished quantity, and so causing what has come to be called 'technological unemployment'. When this has occurred, it is to a considerable extent actually the result of high wage-rates; and it is nonsense to suggest that the same rate of productivity could have been secured if wage-rates had been lower. Nor can it be stated at all positively that there would have been less unemployment; for that would have depended upon the extent and intensity of competition, and on the elasticity of demand for the commodities in question. Failure to make industry more productive might have entailed so great a loss of trade as to throw quite as many workers out of employment as are thrown out by the technical developments of productivity, or caused so great a loss of potential demand as to have the same effect. There can be no doubt that in every country since the war the technical efficiency of production has greatly increased, though it has not done this at anything like a uniform pace over the world as a whole. Any difficulties in paying wages at the present rates (or indeed at higher rates) arise, not from any defect in productive capacity, but solely from a failure of the world economic system to provide for the full utilisation of the capacity that exists. Neither of foodstuffs nor of raw materials nor of manufactures is there any shortage, or lack of ability to produce more. Rather do men speak again of over-production, and go short in the midst of a plenty they cannot control. It is surely manifest that the reduction of wage-rates is a most inappropriate remedy to apply in such a situation as this; for it is bound to accentuate the factors making for a limitation of markets and a shortage of total world demand. Any rigidity introduced into the wage-structure by collective bargaining or State action has been, therefore, on the whole, a blessing, in as far as it has helped to save the nations of the world from plunging into a competitive struggle to capture one another's trade by the method of reducing wage-rates. Nevertheless, if and as far as this struggle is allowed to go on, it may become impossible for a particular country to maintain

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its wage-rates without loss of trade and consequent unemployment. This may be so either because its competitors have reduced their wage-rates, and so, in the short run at least, lowered their costs, or because they have, without lowering wage-rates, improved their relative efficiency. Equally, a particular country may lose trade to others either because it has raised its wagerates, and so, in the short run, raised its costs, or because it has become relatively less efficient. Where the loss of trade by a country is due to a fall in its efficiency, or to an increase in the relative efficiency of its competitors, there are three courses open to it. It can take steps to increase its efficiency, and so regain its lost trade. Or it can lower its wage-rates to correspond to its lower level of relative efficiency. Or it can withdraw in part from the world market, and seek to become more self-contained, and to compensate for what it loses by securing through an assured home demand the fuller utilisation of the productive resources and man-power at its disposal. This may involve the using of these resources in directions in which a given expenditure of effort yields a less return; but the loss involved in this may, in certain circumstances, be more than balanced by more employment. But to pursue this last point further would take me much too far afield-into the entire question of Free Trade and Protection, which has an important bearing on the matters under discussion, but one that considerations of space forbid me to consider here. My present point is that it is disastrous for a country to be compelled to lower its wage-rates by pressure of world competition-disastrous not so much for the country concerned, though its fate is bad enough, but above all because of the reactions of the disaster upon world economy as a whole. For if one country lowers wage-rates in order to capture trade, the countries from which the trade is taken will be under a strong temptation to lower their wage-rates in order to get it back. The result, no doubt, will be cheaper commodities, especially in the free markets of the world. But it will be also decreased purchasing power of working-class incomes, because the cost of living will not fall in proportion to the fall in general commodity pnces.

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Let us now pursue the point a little further. Low prices are a benefit only if they are combined with high production at high wages, or, in other words, if they are not balanced by a fall in purchasing power through low wages or unemployment. Low prices can well be combined with these conditions; but falling prices cannot, save under quite exceptional conditions. Now, falling prices may be due to several causes. They may arise from a restriction in the supply of money and credit, resulting in a disproportion between the transactions needing to be financed and the means available for financing them. Falling prices due to this cause always tend to cause industrial depression and unemployment, because the producer's costs always include rigid elements that do not fall with the prices of the goods he sells. Secondly, falling prices may be due to competitive selling, intensified by changes in the relative efficiency of production between one area and another. Area A reduces its cost through increased efficiency, and other areas, B, C, D, in which efficiency has risen less, have then to bring down their prices, or to lose their trade. Such a situation is obviously, for the time, unfavourable to areas B, C and D, and likely to cause depression in them in proportion to their dependence on foreign trade, or exposure to foreign imports. It will continue to affect them until they either bring their efficiency up to the new level, or cut down their wage-rates, or adapt their industrial systems to the changed world conditions. Thirdly, falling prices may be due to competitive selling, intensified, not by changes in efficiency, but by changes in relative wage-rates without a change in relative efficiency. If area A reduces its cost, not by improving its efficiency, but by reducing its wage-rates, areas B, C and D will suffer heavily in the same way as if the change were due to a change in relative efficiency. And the same choice of alternatives will be open to them. Now, of these three causes the first, a change in the monetary supply, is clearly preventable as soon as the nations of the world acquire the sense to act together for its prevention. But, as this matter is now under discussion by the League of Nations, which 12

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has recently produced a useful preliminary report upon the gold situation, I do not propose to discuss it here, except to say that, as long as the monetary factor is allowed to remain uncontrolled, it is clearly impossible to devise any entirely satisfactory means of adjusting wages, or to deal with full effect with the problem of wage-rates in relation to unemployment. The control of monetary fluctuations is, for the immediate future, by far the most important of all world economic problems. Until we can prevent prices from fluctuating as a result of changes in the supply of money and credit, we shall not be able to advance far along the road of international regulation of the remaining factors. The second cause, improved economic efficiency in one area as against others, is one we can neither hope nor wish to control, though we may desire to cope with its adverse reactions. For we obviously want the world's productive efficiency to increase, and we cannot expect it to increase everywhere at the same time and pace. What, then, ought we to do in order to prevent the adverse reactions which such an increase is apt to set up upon the areas in which the advance is less rapid? The only sound way of dealing with the situation is to allow incomes, and especially wage-incomes, to advance as fast as productivity increases, so as to meet increased efficiency by raising incomes and not by lowering prices. This involves an expansion of money and credit within the area concerned sufficient to finance the growing volume of transactions at the existing level of prices -a condition which can only be assured if the world devises means of securing an adequate expansion of total monetary supply. Even this, however, will not wholly meet the situation; for the increase of productive efficiency will not be evenly spread over all commodities produced within the area in question, and even the stabilisation of the general price-level will not carry with it the stabilisation of any particular price. Particular prices cannot be stabilised in face of changing relative costs of production as between commodity and commodity. Accordingly, the stabilisation of general prices will not prevent those goods whose costs have fallen more than the average from entering into the world market at a lowered price, and so competing with

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171

the products of countries whose efficiency has risen less, or not at all. General price stabilisation would, however, greatly mitigate the effects of this competition, and reduce the problem of relative levels of efficiency to manageable dimensions. There remains a further and more serious difficulty. Even if, in the country in which efficiency has improved, the internal price-level is stabilised, this does not imply stabilisation in the price of exports. Under modern conditions of production, it often pays, with an assured home market, to produce additional goods for export at a comparatively low run-on price; and this is likely to apply most of all to those countries which have increased their efficiency to the greatest extent. There will therefore be a strong temptation for such countries, even if their domestic price-level is stabilised, to engage in a form of export 'dumping', in the sense of selling abroad at less than the domestic price. But even this tendency will operate less if internal prices are stabilised, because their stabilisation, based on the policy of raising incomes to balance increased productive efficiency, will tend to raise costs, or rather to prevent their falling in correspondence with the rise in productivity. Within the limits set by a policy of internal price stabilisation, and by such measures for the prevention of export dumping as the world may wish and be able to devise, the inconveniences resulting from a different rate of advance in productive efficiency in different areas must be accepted as part of the inevitable friction of the economic system, at any rate until international trade has been placed firmly on a collective, or Socialist, basis of exchange. But the disadvantages arising from the third cause of falling prices demand a more drastic and complete remedy; for in this case there are no compensatory advantages from the world standpoint. It is bad for the world as a whole when any country reduces its wage-rates, not because its productive efficiency has fallen off, but as a means of capturing trade from its rivals. For this course tends to create the conditions which lead to diminished purchasing power, and therefore to under-production and unemployment, in the world as a whole. Now, it may be taken for granted that there is no important country in the world in which productive efficiency is actually

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falling. Every important country has in recent years been rapidly increasing its efficiency, though not all have been advancing at the same pace. There ought, therefore, to be no need for any reduction in wage-rates in any country; indeed, they ought to be everywhere advancing rapidly. Actually, in most countries, real wage-rates have been rising, even where money wage-rates have fallen; but the advance is certainly not in most areas as great as the advance in productivity. Moreover, there is now a strong world movement towards the reduction of wage-rates to an extent corresponding to the fall in prices in recent years. What prices (wholesale, or retail, or prices of manufactured goods, or 'general prices' including them all) are meant is none too clear; but the attempt to bring money wage-rates down is unfortunately plain enough. It is, however, evident that it would not pay any country to reduce its level of money wage-rates if it knew that its competitors would do the same; for each country thinks of wage reduction as a means of stealing some of its competitors' trade. Surely, in this situation, the.appropriate remedy is an international agreement not to reduce money wage-rates at all, just as the Washington Hours Convention is the appropriate remedy for attempts by one country to steal a march on others by working longer hours. There is indeed this difference. It would be impossible to enforce uniformity of wages, or even a uniform minimum, in all countries, or even in Europe, whereas it is quite possible to enforce a uniform maximum working day. But it should be at least possible to secure a common agreement among States to countenance no movement designed to bring about a general reduction in wage-rates in any one country, and to do their best to prevent any such movement from occurring. And it should be possible, if this were done, for the International Labour Organisation to promote among employers and Trade Unions international agreements for particular industries stabilising the existing level of money wage-rates as a minimum for the future, subject to any general adjustments that might thereafter be made by consent on an international basis. Goods made in any country at less than the wage-rates thus approved as minima should be regarded definitely as sweated goods. It would be necessary to include in any such conventions or agree-

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ments a provision allowing money rates to be altered, to a uniform extent for all countries, if the value of money could be shown to have risen faster than the efficiency of production. But, in fact, this would not be likely to occur, and ardour to secure wage reductions would be greatly diminished if they were to become operative simultaneously in all the main competing countries. Even as I write down this proposal, I am convinced that it may be regarded as Utopian. If the world cannot even combine to deal with the gold situation, is it likely to combine to deal with the far more intricate question of wages? I confess that at present it is not; for the world has shown in these last dozen years abundant evidence of its collective economic insanity. But there is really no logical objection to the proposal; for the sole reason for wishing to reduce wage-rates, or for regarding their reduction as anything but a calamity, is the hope of stealing, by means of lowered costs, some part of a competitor's trade. It is simply not possible to argue that there is any need to reduce wage-rates because they are too high to be afforded on the basis of present productive capacity, if only that capacity can be fully used. And, as we have seen earlier in this paper, reduction of wage-rates is far more likely to decrease than to increase the effective utilisation of the productive resources that are at the world's command. In short, the idea that high wage-rates and a high level of employment stand in an antithetical relation is as far from the truth as it is possible for any superficially plausible idea to be. Low wage-rates may conceivably, in the short run, add to the amount of employment within a particular economic area; but they will always tend to diminish the total amount of employment in the world as a whole. There remains, however, another aspect from which it is possible to approach our problem of the relation between wages and employment-that of the supply of capital for the development of production. The familiar argument in this connection runs as follows: Under the present economic system, new capital for the development of industry is supplied chiefly out of the savings of the richer classes-that is, out of profits and

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interest. Anything which tends to restrict the amount of profits therefore tends to restrict savings and the supply of capital for industry. High wages tend to leave less for profits out of the selling price of the product, and therefore tend to restrict savings and the supply of capital. Thus the familiar Wages Fund theory makes its reappearance in a fresh guise. It is undoubtedly true that under the present economic system new capital for the new issue market and the development of industry is supplied mainly out of profits and interest. This is the case whether developments are financed out of profits placed to reserve or by means of new capital issues. But, whereas in the former case the new capital is drawn solely from profits, in the latter it is drawn from profits and interest indifferently. The narrowing of the profit margin therefore reacts most directly on that part of the accumulation of capital which is derived from reserved profits, and tends to limit the power of industry to finance itself in this way more than it limits the power to raise money by means of new capital issues. High wage-rates do not directly affect the amount of interest payments-which, in a time of falling prices such as the present, tend far more than wages to absorb an increasing share in the national dividend. Interest, indeed, tends under present conditions to provide an increasing volume of saved money available for reinvestment; and the drift of this money into new fixed interest-bearing securities is a marked feature of the present trend of investment. Under normal conditions, this pressure would result in a fall in interest rates; but these tend to be kept high by the continued existence of large-scale Government borrowing, both for conversions and for new expenditure, and for such exceptional purposes as the settlement of international debts. These high interest rates naturally make it harder to secure money for risk-bearing industrial enterprise; and the difficulty of offering the prospect of a high-profit yield under the existing conditions of industry tends to hold back the reorganisation of industry and its re-equipment with new capital goods capable of producing at the lowest level of costs. But this shortage of capital for industrial development is at least as much due to high interest rates for fixed interest-bearing securi-

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ties as to any other cause; and it is by no means evident that a fall in wage-rates would contribute materially to ease the position. It would do so only if the lowered wage-rates did actually lead to higher margins of profit; and we have seen that the prospect of their doing this is by no means so well assured as it appears on the surface to be. In fact, there is not at present much evidence of an actual shortage of capital in relation to the effective demand. Capital for industrial reorganisation is not in great demand because industry is depressed; and it is not at all likely that a fall in wage-rates would either increase greatly the supply of capital or open up more profitable opportunities for its use. It would be more likely to perpetuate obsolescent methods of production and, by decreasing the pressure on employers to re-equip their works with more up-to-date plant, to lower the demand for risk-bearing capital rather than increase it. This is not to say that more capital is not needed. It is; but the condition of its effective use is the maintenance of a high level of purchasing power among the members of the community, and especially among the workers, who are the main repositories of the demand for consumable goods. For capital can be profitably employed only in providing, in the last resort, for the needs of the final consumer; and any attempt to increase the supply of capital at the expense of consumers' demand is therefore initially suspect. It is true enough that, if all the productive resources of society were being fully employed, capital could be increased only at the expense of final consumption, and final consumption only at the expense of capital. But this antithesis does not hold good of a society in which the existing productive resources are being under-employed. In such a society there is an unused potential supply of productive power, which can be directed to the increase of capital resources so as not to diminish, but actually to augment, the income devoted to the purchase of consumption goods. In fact, consumption and saving, so often represented as antithetical, are likely, in most of the conjunctures of the modern economic system, to vary together and not inversely. It is, of course, possible for a community to spend so much of its income as to make inade-

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quate provision for the future, just as it is possible for it to try to save too much-i.e., more than is required to keep pace with the demand for consumable goods. But it is a fallacy to suppose that high wage-rates are likely to lead to the former condition unless they are pressed up more rapidly than the advance of productive efficiency admits. Moreover, as Mr. J. A. Hobson has pointed out, it is a mistake to regard saving as being solely a function of the surplus incomes of the richer classes in society. High wage-incomes not only react directly on the efficiency of labour, but also lead, through better nurture and education, to the upbringing of a more efficient new generation of workers. Nor are the money savings of the workers negligible, apart from those which are put into education and training. They supply the accumulated resources of the Trade Unions, Co-operative Societies and friendly societies, a large part of the capital of industrial insurance companies and of that devoted to housing, and considerable further sums made available for use as capital through savings banks and thrift institutions of many kinds. The importance of working-class saving is apt to be under-estimated because it does not appear directly in the ordinary capital market, and is controlled indirectly through the various agencies which undertake its reinvestment. A society which relied mainly on the small saver to provide industrial capital in the narrower sense would doubtless need to adopt different methods of capital issue from those hitherto in vogue; but there is no reason to believe that it would go short of necessary capital for economic growth. I conclude, then, in general that there is no substance behind the opinion that unemployment is largely caused by the maintenance of wage-rates at an uneconomically high level. Such a view is, indeed, highly paradoxical in view of the events of the past year. For the crisis through which the world has been passing is, on the face of the matter, a clear case of the failure of demand to keep pace with the development of productive power, whereas, if high wages were at fault, it would be more natural for the demand for consumers' goods to outrun the supply, and for prices to rise than to fall. In the world as a whole, there is manifestly need for a larger amount of income

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available for spending on consumable commodities, and not for a contraction of consumers' demands. Such a contraction would assuredly reduce, instead of increasing, the supply of capital for investment. The desire to reduce wage-rates arises from a perverted and mistaken form of economic nationalism. There are in each country persons who hope to steal a march on the rest of the world by reducing wage-rates and costs of production, and so capturing prosperity at the expense of the adversity of others. They would do well, however, to remember that more than one can play at such a game, and that the game is rendered useless if everyone plays it. Nor should they be allowed for a moment to forget the simple fact that reduced wage-rates are bound to react adversely upon the home market, whereas their reaction on the export market is highly problematical and dependent upon the action of competitors. Reduction of wage-rates ought therefore to be the last, instead of the first, resort of any economic system; and we should be wise, instead of flying to this way of escape from our difficulties, to seek out and correct the real causes of world depression, which are to be found in a shortage of world demand rather than of the world's power to supply, in a lack of co-operative action designed to stabilise the price-level or economise in the use of gold, in the rigidity of our industrial structure from the standpoint of business organisation and mobility of labour, and above all in our failure to use our brains to good enough purpose in facing squarely the realities of the post-war economic world. If the world would only co-operate in order to increase the purchasing power of the workers, instead of competing to reduce it, there would be far more hope that depression would be overcome, and productive power be fully employed on a reasonable basis of mutual international exchange.

A

NoTE ON RELATIVE TRADE WAGE-RATES

I have discussed in the preceding paper the case for a general reduction in rates of wages, but not the special case that is put forward for the reduction of wage-rates in the 'sheltered' trades. It is, of course, true enough that in recent years the workers in

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industries and services sheltered from international competition have tended to improve their wage-position relatively to the workers in the exporting industries. Especially, there has been a marked improvement in the wages of distributive workers and of those engaged in many of the public utility services. Workers in the exporting industries, on the other hand, have suffered large wage reductions during the years of industrial depression. It is accordingly suggested that if wage-rates in the sheltered occupations were brought down to the unsheltered level, the effect would be to reduce the cost of living so as to bring it more closely into conformity with the fall in wholesale prices, and also, by cheapening finished goods to the consumer, to create more elastic markets for the producing industries. It cannot be denied that there is some force in this view. But it has to be remembered, first, that the workers in such services as transport and distribution were, in most cases, very poorly paid, in relation to the main bodies of productive workers, before the war, and that the absolute level of their wage-rates, though it has risen more than the average, is still in most cases not high ; so that it can hardly be easy to force these workers back into the old position of relative inferiority from which they have but lately emerged. Secondly, we must not forget that wage-rates in the exporting industries have in many cases been pressed down to a very low level, defended only on grounds of sheer necessity; so that the demand that sheltered wages should fall to the unsheltered level amounts in fact to a demand for a general reduction in wage-rates, and is open to the objections described m my paper. Moreover, no one has suggested how the reduction of sheltered wage-rates is to be brought about, save as part of a general campaign to reduce wage-rates over the entire field. But such a campaign would almost certainly be more effective in bringing down wage-rates in the unsheltered than in the sheltered trades, low as the former rates ·are already. For the main pressure of competitive forces is still playing upon the unsheltered trades; and wages in the sheltered trades have been maintained chiefly because the bargaining power of the workers is greater in these trades than it is elsewhere.

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Accordingly, an attempt to reduce wage-rates in the sheltered trades alone would hardly succeed, while an attempt to reduce them in all trades would probably but exaggerate the existing disparities between the sheltered and unsheltered groups. The real need is that wage-rates in the unsheltered occupations should be increased, rather than that those in the sheltered occupations should be cut down.

A NOTE ON THE EFFICIENCY OF LABOUR The efficiency of labour in production is the result, we have seen, of two forces: productivity and intensity. Both these forces are compound, and depend partly upon the labourer and partly upon the utilisation of labour by those responsible for its direction. There can be no doubt that, in recent years, both productivity and intensity have tended to increase, and to do so in a dual fashion. Labour has become more productive, both because its quality has tended to rise with improving education and physique, and because it has been given the aid of more powerful and efficient machines, and of better business administration and control. But at the same time the intensity of labour has tended to increase, both because the fear of unemployment has induced harder work, and because modern machinery and factory discipline have tended to set a hotter pace. Both tendencies have been to some extent offset by the reduction of working hours; but in spite of this reduction the average product per man-day has certainly been increasing fast. This factor must be borne in mind when we are comparing present-day wage-rates with those of a decade or two decades ago. Hourly, and even weekly, wages are not being paid for the same amount of expended effort as before, but often for a larger amount. If wage-rates rise in proportion to production per manhour, this rise takes account of the increase in both productivity and intensity of effort; but where a man whose weekly wage in 1914 was xis now being paid zx, it must not be inferred that his money remuneration for effort expended has been doubled. This tendency to increase the intensity of production is naturally accompanied by a tendency to throw the older and weaker

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workers upon the industrial scrap-heap. There is an abnormally large proportion of older men and women among the unemployed; and what is called 'technological unemployment', due to the increasing mechanisation of industry, tends to add most of all to the numbers of older workers discarded from employment in favour of those who will stand a hotter pace.

PART II ECONOMICS IN THEORY AND PRACTICE

VIII TOWARDS A NEW ECONOMIC THEORY WHAT things should the economist study, and from what point of view? It is not helpful to answer that he ought to study economic things from the economic standpoint ; for that answer only pushes the question back a stage, or asks for its restatement in a different form. What are economic things, and what is an economic standpoint? we have next to enquire. The economist is tempted to answer that economic things are those which can be measured in terms of prices, and no others. For he has usually a keen desire to introduce as much precision as possible into his subject, and to make it as susceptible as possible of quantitative statement; and, in the world of wealth production and distribution with which he has to deal, price appears usually to afford the only means of bringing many different things under a common standard of measurement. It is possible to state the number of tons of coal raised, or yards of cotton cloth manufactured, in the world or in any particular country or area, provided that the trouble is taken to collect the necessary figures. But it is not possible to measure the coal in comparison with the cotton cloth, under the conditions of modern industry, without invoking the concept of price. It is possible to determine the number of men employed in mines or cotton factories; but it does not seem possible to compare the amounts of human productive energy used up in producing the coal or the cotton goods except in terms of the wages paid-the price of labour. All the most familiar economic terms-rent, wages, interest, profits, costs, margins, capital, credit and a host of others-are thought of most easily as sums of money or rates of money return, or somehow in terms of money as prices or values; and this seems to be the only way in which they can be thought of together, and made the subject-

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matter of a study embracing the economic system as a whole. It is true that the economist does think of each of the things which he studies in another way as well-as long as he is studying them one by one. Thus, after Ricardo, he thinks of rent as a quantity of produce, depending on the differential productive capacity of a parcel of land, and treats this real rent as underlying its expression as a sum of money. He thinks of real wages, as well as money wages ; real wages being the quantity of goods secured by the labourer in return for his work. He thinks of both interest and profits, not only as sums of money, but also as shares in the real product of society as a whole, or of a particular industry or enterprise. He thinks of costs, not only in terms of money, but also as the using up of scarce real factors of production; of margins in terms of the different quantities so used up; of capital as a stock of buildings, machines and other physical productive assets, and not only in terms of shares valued in money; and of credit as the advancing of goods or of the right to goods as well as of money. Indeed, he is conscious all the time that the prices of which he treats are only worth discussing because they are the prices of real things, material or immaterial; and that production and distribution matter because they secure a flow of real goods and services to the consumer. But while these real things appear plainly in the separate statement of the conditions underlying each part of the mechanism of prices, they drop right out of sight when the separate factors have to be brought together, and marshalled into a general theory of production or distribution, or even into a sectional theory involving the comparison of one thing with another. For how, asks the economist, am I to compare one thing with another except in terms of its money value, or price? Is not this the most realistic way of comparing things-the way in which they are being compared every day in the course of ordinary economic transactions? How else are they to be compared? What other possible standard is there? The earlier economists thought they had found another and a more real standard, when they attempted to measure value,

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as distinct from price, in terms of the amounts of labour expended on the production of different goods. This value seemed to be a real standard, based on the real amounts of scarce factors of procl.uction used up in placing the commodity on the market, and therefore expressing the real social costs of its production. But in fact neither Ricardo nor anyone else ever found a way of measuring the amount of labour apart from the wages paid. As long as the subsistence theory of wages held the field, this did not seem to matter; for the wages could be held to express directly the actual goods consumed by the labourer. But as soon as the subsistence theory was given up, the amount of labour became a purely hypothetical and unmeasurable concept. Marx attempted a complex restatement of the amount of labour theory on the basis of the subsistence doctrine; but this is admitted to be the least digestible part of the Marxian system. Marx's doctrine of surplus value does not stand or fall by his acceptance of the amount of labour theory of value or the subsistence theory of wages. With Mill we pass into the realm of 'price of production' instead of 'amount of labour'. Clearly the attempt to get at real value apart from money has been abandoned, and we are in the realm of prices, with only an endeavour to abstract from shortterm market fluctuations, effects of monopoly, and other disturbing factors. Value is still thought of as determined by the conditions of supply, with demand in a quite secondary position; but it has come to be thought of in terms of money and not of quantities of the real agents or factors of production. From this time onwards, Economics passes over thoroughly and completely to the study of prices; and the old distinctions between prices and values are either discarded, or kept only as two names for the same thing in its phenomenal and noumenal forms. Economics is trying to become the study of prices, and to concentrate its attention directly on the working of the pricemechanism in modern societies. It keeps, to be sure, in its opening chapters and scattered here and there through its treatment of particular subjects, some stale metaphysic and some very crude psychology. But, when it cuts the cackle and comes to the horses, it is of prices that it speaks. The metaphysics of 13

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wealth, and the psychological generalisations about the relation of wants and desires, satiety and diminishing satisfaction, mental discounting of the future, disutility of labour, and all the rags and tatters of the hedonistic calculus, are irrelevant to its serious work, which is the study of the prices of goods and consumers' services, of money and credit, of land and capital and labourin short, of everything that enters into the working of the economic system as it is. I confess to finding this conception of the scope of Economics fundamentally unsatisfactory. This is not because I am at all disposed to deny the importance of price calculations, of supply schedules and demand schedules and the rest of the marginalist stock-in-trade, of the careful statistical analysis of actual price data, of the studies of trade fluctuation, currency questions, and schemes of stabilisation that are being largely pursued by this means. Much less do I deny the importance of measurement in some form, or its central place in any scheme of economic study. But the limitations of these quantitative methods using money as their measure, and their tendency to mislead unless these limitations are kept firmly in mind, seem to me to need constant emphasis; and especially I want economists to be on their guard against attaching undue importance to, and drawing unsuitable and incongruous conclusions from, either actual or, still more, purely theoretical data concerned with the behaviour of the price system. It is easy enough to understand how the tendency to draw such conclusions arises. Price is so convenient a measure, and does so appear to answer the economist's demand for precision. It is, moreover, so omnipresent a fact of existing economic relationships that to study it seems above all else the way of being realistic and practical as well as precise. Since price is for producer and consumer alike both the dominant consideration and the only point of contact over a wide field of economic activity, it seems as if, by studying it, we should get down most quickly and easily to the roots of the economic problem. But do we? It is, indeed, obvious that, for many special purposes, study of the price relationship is essential. It is necessary for the consumer, trying to make both ends meet; it is necessary

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for the business man, studying his prospective money costs and yields in every productive operation on which he embarks; and it is necessary for a Chancellor of the Exchequer or a City Treasurer, seeking to make his budget balance. The price relationship seems to be by far the most characteristic relationship of the economic world; and a recent economist even goes so far as bluntly to label Economics as 'The Science of Prices'. And yet-how many of the questions that sensible people want to get help from Economics in answering can be answered purely in terms of this 'science of prices'? That considerations relative to prices will be involved in many of the answers I fully admit; but are they all the questions, or even always the principal questions in\rolved? It is, of course, possible-and even fashionable-to say that these other questions are non-economic, and to push them aside in the hope that some other 'science' or study will be kind enough to deal with them. But is this a satisfactory way of meeting the plain man's desire for help? It may be true-it is true-that the answer to almost every big practical question involves non-economic as well as economic considerations; but are we to say that all considerations which cannot be reduced to terms of price are non-economic? I at any rate do not think we can; for there are many problems, incapable of complete expression in terms of prices, that I can see no way of referring to any other study. They are economic problems essentially; for they deal with the supply and use of goods and serviceswhichneedeffort to produce, and take away, if they are produced, from the supply of productive resources and energy remaining for other uses. If problems of this order are not economic, what are we to call them? And, if the economist is not to attempt to play his part in answering them, who is? I am saying, then, that while price considerations are admittedly important, they are no more important, and no more economic, than many considerations which cannot be expressed at all in terms of price. Perhaps an instance will help to make plainer what I mean. It may be quite possible for a steel manufacturer to say exactly what the coal and the labour used up in a particular operation cost him-in other words, to know their

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price. But we cannot take the price which he has paid for these factors of production as representing necessarily their 'cost' to the community. The conditions under which the coal was mined, the conditions under which the ironmaster employed his labour, have all manner of social reactions which we certainly cannot assume to be accurately represented in the purchase price of either. And, even if these reactions are described as being 'social' rather than economic in character, my argument is not affected; for even if they are, in their totality, social, they certainly include elements which no one will deny to be economic -as, for example, the cost of any poor relief given to the coalminer or any subsidy to his employer, and the cost of the medical treatment which may become necessary if work in the iron trade is carried on under unhealthy conditions. Here, of course, I am saying simply that, distinct from the actual cost to himself which the buyer calculates in any transaction, we must admit a conception of 'social cost' differing from this market cost, and having in it at the least economic elements which the market cost does not accurately reflect. This is a vitally important difference. But I think my point goes even deeper than may at once appear; for it is clear that, whereas the business man measuring market costs is dealing with prices, any estimate of social cost involves getting behind prices to the realities which they in some part represent, but in some part also distort. It is indeed true that even the business man seldom or never makes his most vital decisions purely as a result of a calculation of prices. He has also mentally to weigh up factors which cannot be reduced to terms of money costs, and to weigh these in the same scale as his money costs before arriving at his judgment. He has to do this as a business man, apart from any purely 'social' consideration which may affect him, business man though he is, as a citizen or a human being. There are in his own costs, as distinct from the costs of society, elements which do not respond to the price valuation, though they have to be related to it in his act of judgment. Obvious examples are to be found in his decisions about the amount of hard work he is prepared to put in himself in order to make his business a

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success, or as to the worthwhileness of a particular contract in relation to the toil and trouble, as distinct from the money cost, in which it is likely to involve him. Let us agree, however, that his aim is to express all possible factors in terms of price, because it is in terms of price that his balance has ultimately to be struck. The social point of view is essentially different, since its concern with prices is only incidental. The social valuation of the 'costs' of any service has to be made ultimately in terms, not of its prices, but of the amount and quality of the labour and real capital resources which it uses up, the quality of the life which it affords to the labourers, the real value of the product to the consumers, the indirect effects of the particular uses to which the labour and capital are put-e.g., such effects as pollution by smoke, the promotion or destruction of the employees' intelligence or vitality, the disturbance of amenities as well as values caused by a particular localisation of an industry, and a hundred other considerations which will not directly admit of money measurement. The earlier economists from Ricardo to Marx, with their 'amount of labour', as distinct from 'cost of production', theories of value, were certainly nearer to measuring social costs than any later school has been. As soon as 'amount of labour' was discarded in favour of 'cost of production'-that is, a real in favour of a money measurement-the social element was in effect jettisoned. Political Economy became 'Business, Economics', and the way was opened, via the Jevonians and the Austrian subjectivists, for a mere 'Science of Prices' instead of an attempt to understand the principles governing the wealth of nations. More and more since then the economist has ploughed his business furrow, allowing 'Economics of Welfare' to intrude only as a half-alien metic in his beautiful City of Prices. That he has achieved along these lines certain substantial and very desirable results I have no wish to deny. But let us pause for a moment to enquire just how much he has achieved. Economics, as it is ordinarily taught, has two main branches -production and distribution. Its study of production is in fact mainly concerned with the theory of value---that is, of

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prices-as determining what shall be produced or not produced. In the forefront of the current presentation of the subject is consumers' demand, conceived as the final determinant of the productive process. This demand is expressed in a number of demand schedules, representing the total market demand for each commodity at various prices, and made up by disintegrating the individual and household budgets of a large number of separate consumers. Over against this conception of consumers' demand is set the willingness of the producers-that is, of business entrepreneurs in the main-to supply the various goods and services which the consumers want, in varying quantities and at varying prices in accordance with the conditions of demand. These supply schedules, whose interaction with the demand schedules results in the actual production and consumption of such and such goods and services at such and such prices, are conceived in terms of costs of production varying with the quantity produced. We thus get a theory of prices, worked out initially in terms of the relations between buyers and sellers of finished goods and services, and then applied by analogy to the buying and selling of producers' goods as a case of 'derived' demand; and this is offered to us as a theory of production. The typical text-book of Economics then passes on to Distribution, by which it means primarily the division of the national income arising out of production among the various 'factors of production'. These shares in mcome are again regarded as prices, arising out of the relation between the demand for varying quantities of various kinds of land, labour, capital and business ability at varying prices, and the willingness of those who control these factors to supply them in varying quantities at different prices. But whereas the theory of production, which is also the general theory of value, deals in the main with all commodities together before proceeding to a discussion of the differing elasticities of supply and demand in the case of various commodities, in the theory of distribution most of the time is spent in dealing with the separate characteristics of rent, interest, profits and wages, and very little is usually done towards formulating any general theory of distribution. Perhaps

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it is held that this has been done already, under the head of Production, in stating the general theory of value, and that the various forms of distribution are only special cases in the working of this theory. If that is so, there are not really distinct theories of production and distribution at all, but a single theory of prices or values which embraces both. Nevertheless, the twofold arrangement commonly persists. The weakness of this method of treatment is surely clear enough. It begins, in the statement of the theory of the value of commodities, by assuming that consumers' demand exists independently of supply, whereas in fact people get the incomes which make up the schedules of demand only if production takes place, and as a function of the productive process. For either their incomes come to them directly from production, as wages or salaries or profits or rents or certain kinds of interest, which are shares in the product accorded to 'factors' of production; or, if their incomes come to them in any other way, they must take the form of deductions from the incomes accruing to these same 'factors'. There is no source of income except production; and if production slows down or stops, the flow of income must slow down or stop as well. Of course, everyone is well enough aware of this; and it even appears plainly in the statement of the theory of distribution, which is represented as a sharing-out of the product among the several factors. But the theory of distribution takes the production for granted; for has not that been dealt with already, in the opening treatment of value? But in that opening treatment we have not really been given a theory of production at all. Instead, we have been offered a very different theory-a theory of the response of producers to a demand which is assumed to possess an independent, and even a prior, existence. For the traditional statement of the theory of value makes demand its starting-point, and then studies the producers' reactions to it; whereas in reality there can be no demand, in the economic sense, save as a result of production. In saying this I am not, of course, attacking what the economists have to tell us about the working of their schedules of demand and supply. It is perfectly true that, other things being

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equal, more will be demanded of a commodity as its price falls, the degree of elasticity varying greatly from one type of goods to another. It is no less true that producers, or rather entrepreneurs, will be willing to supply different quantities of goods at different prices, though in this case their response cannot be so simply stated because of the complications of increasing and decreasing costs. But the demands to which the supplies are conceived as responding do not exist independently of their response, and can be taken as a starting-point for analysis only because the economist is studying a process already at work, and a situation in which incomes are being generated as a result of actual production. But even so the theory fails to supply a satisfactory analysis of production. It proceeds on the assumption, sometimes explicit, but often unspoken, that we can take demand for granted, subject only to temporary frictions in the working of the economic mechanism, because the logic of the interacting forces will result in a situation in which the available productive resources will be fully employed. Demand will exist because production will exist; and production will exist because the forces of demand will adjust the prices of the factors of production to levels which will cause them to be fully employed. For consumers' demand, from which the demand for producers' goods is derived, will determine the total income to be distributed among the factors of production; and the 'factors' will have to take what they can get, as a result of their several pulls or relative productivities, out of the total income thus determined by consumers' demand. What is ignored in this analysis is that the producers' unwillingness to use all the available productive forces at the prices offered by the consumers can at any time, and must, if it is exercised, result in a contraction of consuming power. If supply is contracted, demand is contracted as well, because the incomes of the consumers arise out of the productive process. Since this is the case, if once for any reason the powers of production come to be incompletely used, the means of getting them back into use is destroyed at the same time, through the fall in real consumers' demand. It does not matter whether the goods that

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are still being produced are sold cheap or dear; for in either case no more income is being generated in production than will suffice to buy those goods. There is no consumers' demand available for the goods that could be produced in excess of the current production. I am not now raising any of the questions-vitally important as they are-which arise out of the possibility that at certain times, owing to a kink in the economic system, there may be either an excess or a deficiency of purchasing power in relation to the supply of goods on the market, or that relative over- or under-saving may produce a deficiency or excess in the demand for consumers' goods. These are quite separate problems. My point is simply that, under existing conditions and apart from such special disturbances, the system by which incomes are generated in the course of production, while production is a voluntary act which producers are free to undertake or to refw?e, provides no ready means of getting from a situation in which under-production has actually arisen back to a full utilisation of the available resources, even if the producers, chastened by under-employment, become willing to sell their goods more cheaply. For a mere cheapening of supply will not widen the market: it will cancel incomes as well as lower prices, unless it is achieved by a lowering of the real, as distinct from the money, costs of production. Of course, a cheapening of supply by one group of producers, from whatever cause it arises, may cause a transference of demand to them from other supplies; but this may only transfer unemployment of productive resources, and not prevent it. The point is that there exists, under present conditions, no economic law, and even no tendency, making for the full use of all the available productive resources. Unemployment of men and resources may be, not a merely temporary result of disequilibrium, but a permanent feature of the economic system, incurable by means of any mere readjustment of the prices of the factors of production. Indeed, unemployment, whereas it causes a redundancy of labour, may actually shorten the supply of new capital available for productive use, both by diminishing the inducement to the entrepreneur to embark on production and

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by lessening the supply of new savings owing to the decrease of the flow of profits out of which such savings are largely made. A shortage of new capital available for industry may coexist with a redundancy of old capital resources already embodied in factories, plant and other productive assets, which may be unusable for want of new capital to bring them up to date, and to effect a fall in the real costs of production. Thus, unemployed men and resources can exist under the present economic system, and while they exist there can be a perfect balance between the actual supply and the actual demand, which both arise out of the production that does in fact occur. It follows that, while the analysis of the interaction of these forces is a very necessary part of economic study, it cannot constitute a theory of production. It assumes the existence of production, which is implied in its first postulate, the existence of demand. A theory of production should begin with the analysis of production itself, since production is logically prior to demand, and therefore to the interaction of supply and demand. It is true that production, to be of use, must deliver the kinds of goods which the consumers want, and that production which does not achieve this is sheer waste of effort. But under the present system, the analysis of production must come first, because out of it and in no other way does demand arise. This is as true of State demand, or of demand which appears to be independent of production, like the demand of rentiers, because this demand has to come out of taxes or other claims ultimately charged upon production. But how are we to begin with an analysis of production? I should have said rather that the logical starting-point for Economic Theory is an analysis of productive powers. There is in any community: or in the world as a whole, a certain supply of productive resources, human and material. The economic problem is so to organise the life of society as to use these resources for the creation of the greatest utility. But this cannot be merely a question of the total quantity of resources available; for the resources themselves are highly differentiated already. They include potential workers possessing many different kinds

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of skill and aptitude for both manual and mental work, and natural resources and capital goods capable of being used to turn out many different classes of finished commodities and services. Some of these resources are fixed absolutely to a single use, and cannot be used at all in any other way; others are usable in a variety of ways. There are fixed resources and adaptable resources; so that society has always the choice up to a point between different kinds of production, but cannot rapidly change the character of its production beyond this point without rendering some of its resources valueless, and involving itself in expense of materials and effort for the adaptation of others. To some extent, certain things must be produced, or productive resources left unused; but the possibility of changing the forms of production by a redistribution of free resources is always considerable enough to allow a good deal of adaptability. These facts suggest a twofold problem-first and most obviously, the direction of the new and more readily transferable resources into the branches of production in which they will be of most use ; and secondly a wise discrimination in the scrapping or retention in use of those productive resources which can be transferred either not at all, or with greater difficulty. But how is the community, or the economist, to judge to what forms of production free or transferable resources can be most usefully applied, or whether resources of the second sort should be scrapped or kept in use? The orthodox answer is that this is not a matter either for the economist or for the community as an organised body, but for the market-the free demand of the countless individual consumers. They, it is assumed, will by their demand schedules transfer production steadily to the most useful applications, and settle the fate of existing resources by either providing or not providing a sufficient profit incentive to those who order their working. But is this good enough? If consumers' demand is withdrawn from existing undertakings and transferred elsewhere, the result will be to throw workers previously employed in these undertakings out of work and to cancel profits and other incomes dependent upon them. It is not true that the result will necessarily be only a transference of demand: it may be a reduction

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in total demand through the cessation of the incomes of those who are thrown out. The new incomes generated in the course of the new production made possible by the changed current of demand will to some extent replace these lost incomes; but they need not replace them to the full extent, and a new balance may be struck at a lower level of production. Whether this happens or not will depend mainly on the scarcity or abundance of free or easily transferable resources that can be applied to the new types of production. If these are deficient, and the new balance is struck at a lower level, that lower level will tend to perpetuate itself, just because it does rest on a balance between supply and demand. Nor can we assume that the free play of consumers' demand will either evoke a full use of new productive resources, or-direct new and transferable resources into the most useful forms of production. If it takes some time to bring the new resources effectively into play, the destruction of incomes through the disuse of the old resources may so contract demand in the interval as to make new development not worth while from the standpoint of the entrepreneur. The strength of monetary demand cannot, moreover, be accepted as a valid test of usefulness, in face of the inequality of incomes and the different utility of money to different purchasers. And, thirdly, the possessor of income may elect not to apply it at all in the form of consumers' demand, but to hoard it, or use it in some other way which will upset the balance of the economic system. I conceive it to be the economist's function, in his study of the productive possibilities of society, to work out precepts for securing the maximum of useful production. If it were in fact enough to leave this to be seen to by the free play of consumers' demand, there would be no more to be said, and the economist would be free to pass on to the next subject-the study of the supply and demand relation in its interaction with the system of prices. But if the free play of consumers' demand is not enough, both because there is no guarantee that it will be adequate to elicit the greatest possible production, and because it will not necessarily lead to the best kinds of production, the economist has to be kept prisoner for a while until he can tell

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us what complementary or supplementary criteria we can use. I am not for a moment suggesting that free consumers' demand is an unimportant criterion, or one that ought to be superseded. But I am urging that it needs to be supplemented and, on occasion, corrected. It cannot really be economically right for a community to leave usable productive resources unused, as long as there is any unsatisfied demand for the goods they can be used to produce, even if their employment will not yield a profit. For all income, and not profit income alone, is from the social standpoint a gain, and all usable products that people want at any price are worth producing, if the alternative is to produce nothing. The attainment of maximum production is, indeed, commonly stated at the beginning of treatises on Economics to be, par excellence, the economic objective. But, apart from assumptions that the free play of consumers' demand will in fact secure this, the methods of getting maximum production are usually no further discussed. As we have seen, however, the method of beginning with consumers' demand as the initial datum means that, at the most, the securing of production can be discussed only within the limits set by this demand, and not in relation to the capacity of the available productive resources. While, therefore, there is every reason for leaving the consumer free to choose what he will buy from among the goods offered for sale, it does not follow that the supply of goods offered, or the prices at which they are offered, should be left to be determined by the response of the entrepreneur to consumers' demand. Indeed, this is very far from being a true picture of what happens under the present economic system, or has ever happened in the past over the whole field of industry. Price-fixing is, in the case of many classes of materials and manufactured goods, nowadays a function of the productive organisation rather than of consumers' demand. Of course, the productive organisation can act only within the limits of demand, in the sense that the level of prices fixed is bound to react on the quantity sold; but the price is actually set, in a great number

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of cases, by the entrepreneurs, and consumers' demand left to act on output rather than on price. Nor is this merely a result of the growth of monopoly in the modern world. Two centuries ago, prices were on the whole a good deal more rigid than they are today, partly through the action of guilds and corporations, but also because tradition was a far stronger element in economic life. It was not only the breaking down of privileged corporations and the growth of commercial competition, but even more the destruction of traditions in the Industrial Revolution, that made price highly elastic in response to consumers' demand. The conditions depicted as typical in the text-books were perhaps typical of the nineteenth century: they were not typical of the sixteenth or the seventeenth, and they are not typical of today. But a system under which price-fixing tends again to become a function of the entrepreneur is no more calculated-indeed, it is even less calculated-to elicit maximum production than one in which prices respond readily to consumers' demand. For this system not only fails to escape from the limitation of demand which arises from the fact that incomes are generated only in the course of production, but also adds to it in many cases the deliberate restriction of output in order to maintain prices. Under either system, the determining factor between production and non-production is worthwhileness from the standpoint of the entrepreneur. That is to say, the form of income which we call profit provides the sole incentive to production, and the other forms of income, though they are equally valuable from the standpoint of the community, appear as costs or deterrents, and not as incentives. If, then, we desire to discover the conditions likely to lead to the full use by society of its productive resources, we have clearly to question the assumptions on which the present system of production rests, and especially the existing relations between income and production. But we can cut clearly away from these assumptions, without putting new ones in their place, only if we begin by studying the productive system in itself, as distinct from its relations to the processes of distribution and exchange. A realistic Economic Theory based on this principle will set out from a study of the character and organisation of the avail-

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able productive resources of modern societies, from the standpoint of production itself. It will study the general technological conditions of modern industrialism in relation to the sources of power and the developing forms of power production. It will survey the available material resources of modern communities, and the changing relations of the human labour power to the machines and the power equipment at its disposal. Of course, the special techniques of the various branches of production, as such, are not its business; but it is essentially its business to consider the forms of economic organisation most appropriate to the technique of modern industry, and best calculated to promote a full use of the available resources. It will therefore proceed from a survey of the underlying technological conditions to a study of the actual and possible forms and methods of industrial and economic organisation-the structure and working of joint stock companies, cartels and combines, the development of co-operative production in agriculture and industry and of the consumers' Co-operative Movement, the forms and operation of public enterprise, State and municipal, and of statutory public and semi-public concerns. It will deal also with the growth of planned economic organisation, both national and international, with the international action of trusts and combines, with State planning schemes as they exist in Russia and have been adumbrated elsewhere, and with Socialism as a theory of the right method of organising the productive powers of society on both a national and a world-wide scale. So far, this revised Economic Theory will be considering its problem solely from the standpoint of production. It will be dealing with the relative merits of large-scale and small-scale economic organisation, of public and private enterprise, of mass production and its alternatives, entirely as questions of productive efficiency. It will have, of course, to include in its survey the economic effects of different forms of production on the workers as producers, but only the economic effects, and only those as far as they react upon production. So far, no question of demand or distribution arises; for the question is not how the product is to be distributed, but how to make it as large as possible, and we are for the present leaving demand

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out of account, and assuming that whatever can be produced can also be consumed. This, however, is an assumption which, as we have seen, cannot be sustained, in relation to the present economic system. The next point, accordingly, is to enquire why it is that the mechanism of distribution breaks down. But in passing to this branch of Economics we find ourselves under the necessity of redefining its scope. The classical theory of ~istribution is concerned with showing how the relative shares in the product of the various factors of production are determined. It takes for granted both the volume of production and its correlative, the amount of income available for distribution, and considers only how the rival claims of the different factors are adjusted. This, however, is just what an Economic Theory which aims at laying down the conditions for the maximum production as well as the best possible distribution of the product cannot do. Its first task is to discover the conditions necessary to ensure a total distribution of income on a scale which will make possible the full use of the available productive resources. It will therefore concentrate first of all on expounding the present relation of the productive system to the distribution of wealth, and try to discover why it is possible for unused productive resources to coincide with need for precisely the kinds of goods which they could be employed to make. This will cause it to enquire whether it is really desirable to make the distribution of income, as it is now, a function of the productive system, or whether there is some way of escape from the vicious circle of under-production and deficient demand. Why, it will ask, should not incomes be assured and distributed on a basis of available productive power, instead of actual production, so as to ensure the maintenance of a sufficient total volume of effective demand? This enquiry will inevitably take the economist into deep waters. It will mean asking in the first place how, under existing conditions, a deficiency of demand in relation to productive power can actually arise. This raises at least three outstanding questions. The first has to do with a possible unevenness in the flow of goods and of purchasing power, due to the accumulation

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or reduction of stocks, the irregular flow of income into the hands of the consumers, and the time-lags in the effect of reduced or increased production on the flow of goods and incomes. Since this essay was first written, this question has been discussed at length by Mr. P. W. Martin in his book, The Problem of Maintaining Purchasing Power. The second question has to do with the double relation of incomes to producers' and consumers' goods. Money can be used to buv either; but an addition to the effective supply of producers' .goods is of value only if the demand for consumers' goods also expands enough to absorb the additional supply which results from bringing the new producers' goods into productive use. If, then, the possessors of income, in an endeavour to increase their future incomes by saving, apply so much money to buying producers' goods that there is not enough left to absorb the available consumers' goods, some of the available productive resources are bound to go out of use. Under-consumption will thus lead to under-production and unemployment. It is the familiar thesis of Mr. J. A. Hobson that the maldistribution of incomes in capitalist societies tends to produce this result. The third question relates to international competition as a cause of under-production. Costs of production differ from country to country in accordance not only with differences of productive efficiency, but also with higher or lower wages, interest charges, taxes, rents. A country with low costs in any particular branch of production can undercut its competitors in such markets as are not closed by prohibitive or discriminating tariffs or restrictions on imports. According to the classical theory, the countries with higher costs ought then to abandon the trades in which they are being undersold, and find others in which they enjoy a comparative advantage. If they cannot do this, it is a sign that their general level of costs is too high; and they must reduce their standards of living until equilibrium is reached. But this classical doctrine is not easy to apply in practice; for attempts to reduce the standard of living are resisted and lead to friction, which lowers efficiency, provokes retaliation from other countries, and, above all, tends to destroy Lj.

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purchasing power in the home market wherever the fall in retail prices lags behind the reduction of producers' incomes, as it almost inevitably does. Friction arising out of international economic intercourse has therefore to be considered as a third factor making for a deficiency or redundancy of purchasing power. It is the first business of the Economics of Distribution to consider these flaws in the working of the present system, and to suggest means of ensurlng an adequate and regular flow of incomes in relation to goods. The first set of questions-those discussed by Mr. Martin-suggests the need for a regulation of the growth or diminution of stocks, which involves in turn a regulated flow of new production. It suggests, further, a regulation of the even flow of incomes, involving consideration of methods and times of. paying dividends, interest, wages, and of the conditions under which credit is expanded or contracted. And, finally and most fundamentally, it suggests a regulation of the total amount of income to be distributed, so as to bring it into the right relation to the available supply of goods and services. Mr. Hobson's contention about relative over-saving raises a quite distinct issue. It suggests that the system under which income can be used, at the recipient's choice, for buying either producers' or consumers' goods may be radically wrong, and that there is much to be said for distributing as incomes to the members of society only as much as society can afford to spend on consumers' goods, and providing in a different way for the necessary amount of capital accumulation. There is a foreshadowing of this method in the practice of business concerns of financing developments out of reserved profits. But this method involves no collective regulation of the relative amounts applied to 'saving' and 'spending'. This collective regulation seems, however, to be the only means by which the accumulation of capital can be kept in the right relation to the volume of spending. It is not suggested that there is an economically right relation, and only one; for a society may decide to spend or save more or less, just as an individual can. But a society which has saved so much in one period must release enough spending

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power to absorb the new consumers' product at a later stage, or make its saving sheer waste. The third problem-that of international friction-suggests obviously the need for a far closer international regulation of the world's economic affairs, for a correspondence of the standards of income· in different countries to their relative efficiencies in production on a basis of the full use of their productive powers, and for an organised interchange of goods and services in place of the present unregulated competition. Problems of this order, and not a mere discussion of the relative shares of the different factors of production in a total product assumed as a datum, should be the chief preoccupation of the Economic Theory of distribution. Until they have been discussed, and the means of providing for an adequate and even distribution of incomes thoroughly examined, it is of little advantage to make a study of wages, or profits, or interest, or rent in their separate manifestations under the existing system. For, without the necessary prolegomena concerning the relations of production and distribution, such a survey can be merely descriptive and analytical of things as they are, and can possess no critical value. But as soon as the economist approaches the problems of the division of incomes in society in the light of this preliminary critical study, he can accompany his description and analysis of the existing forms of distribution with a discussion of their reactions upon the productive system. It will at once be plain that the object of distribution is twofold-to elicit the maximum production of wealth, and to afford the largest possible amount of satisfaction. Having posited these two ends to be served, he has next to discuss how far they conflict, or can be made to work together. It is evidently possible that they may conflict-if, for example, it is true that, in order to secure the maximum production, it is necessary to permit both huge accumulations of private wealth at one end of the social scale and dire poverty at the other. This problem, however, takes on quite a different aspect if the economic problem of the accumulation of capital-that is, of saving for capital development-can be separated absolutely

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from that of the distribution of income. For the chief justification usually offered for large incomes is that they are the main source of saving, and therefore of the increase of wealth. The provision of new capital from sources quite apart from distributed incomes would remove this economic argument in favour of gross inequalities, and would leave only the secondary argument based on the necessity of high financial incentives in order to elicit the fullest efficiency. But this argument would lose most of its sting if incomes could be used only for spending and not for accumulation; for clearly, under such conditions, quite small inequalities of reward would be fully as effective in eliciting effort as large inequalities are now. It would be, then, unnecessary to allow large scope for private profit, which is the chief incentive to production under the existing conditions. It would be unnecessary to pay interest to private persons in order to induce them to save. Wages would appear, not as costs of production to be kept down to a minimum, but as shares in the product to be maintained in due equilibrium with the quantity of goods and services available for consumption. There would still remain, of course, on the one hand, the problem of distributing the available supply of new capital among the industries and services asking for its use as a means of development; and interest might be retained as an instrument for rationing this capital. There would still be the problem of assessing the wages appropriate to different types of service, and of deciding the conditions of work. There would still be costs of production dependent on these charges, and prices for goods offered in the market which would be for the most part fixed on the basis of these costs. But it would be possible to sell some goods at less than cost where this was deemed necessary in order to prevent the disuse of productive resourcesthat is, where the threatened resources were of a kind that could not speedily be transferred to other uses. And, in relation to other countries, it would be possible to sell exports for what they would fetch, and to seek recoupment by fixing import prices at a level calculated to cover the cost of the exports for which they were, in effect, being taken in exchange. All this, of course, assumes a regulated economy, based on

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the public control and direction of the processes of capital accumulation. Such control seems to me to follow logically from the need to balance production and consumption in such a way as to secure a full use of all available productive resources. But this balance itself involves social regulation of prices as well as of production; for evidently the right amount of income to be distributed in order to balance the possible production depends on the level of the prices to be charged for the various products. Accordingly the new Economic Theory for the twentieth century has to set out from the possible productivity of the economic system, has to devise means for applying a part of this productivity to the development of capital resources apart from the distribution of incomes, and has then to arrange for a sufficient distribution of incomes to absorb the product destined for consumption at the prevailing prices. These prices, in the case of any particular commodity, must be fixed at the same time as the quantity produced, and in relation to the total amount of consumers' income. A higher price for any particular product will usually mean a diminished consumption; and this will release more productive power for the making of other things to be sold at lower prices. Just as States now raise the prices of certain goods by taxation-alcoholic drinks, for example-and so diminish their consumption, the same end, or the opposite end of lowering other prices below cost, could be directly pursued under an economic system based on the central and co-ordinated control of production, prices and incomes. But it does not follow that there would be any widespread intervention to change the currents of consumers' demand; for most goods could continue to be sold at prices regulated in accordance with their costs of production. Surely an Economic Theory devoted to the study and elucidation of the issues raised in the preceding pages would be vastly more useful, and far more closely related to realities, than much of what now passes current as the groundwork of Economics. If, indeed, the function of the economist were merely to describe the working of the existing system and to analyse its characteristics, without any attempt at criticism or

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any suggestion for its improvement, much of what I have said would be beside the mark. But, even so, a good deal would be relevant; for the disharmonies that exist are as much a part of the system as its harmonies, and must be included in it, even if they are to be left uncriticised. My discontent with the present shape of Economic Theory, as it is set out in the textbooks, arises partly from its failure to reveal these disharmonies, because it begins by assuming demand as a force independent of production, which it is not, and because it never relates its account of the factors in distribution to any coherent account of the working of the productive process. It fails and misleads, even in as far as its function is purely to describe. But in fact Economics has never been content merely to describe what is, without implications about what is desirable, in an economic sense. The present shape of Economic Theory is based essentially on certain assumptions. Private property is assumed, and leads to the assumption of rent and interest and profits as necessary payments. Private accumulation of capital is assumed, and leads to the assumption that great inequalities of income are economically desirable. Private control of the productive process is assumed, and leads to the assumption that large incentives must be offered to the entrepreneur. Class differences are assumed; it is assumed that the economic function of the State is to defend these assumptions from attack; and, behind all else, there is still assumed a natural harmony which somehow causes the self-interest of each to coincide on the whole with the common interest of all. I shall be told that the economist does not make these assumptions, that he is ready to discuss the economic effects of alternative ways of organisation, of Socialism or Co-operation as alternatives to private enterprise. It is true that he is ready to discuss these things; but he discusses them in terms of a theory shaped and designed to fit the conditions of Capitalism, and no others. I shall be told that in any case the economist's conclusions are economic and not ethical, in that his business is to point out what is desirable economically, and not in a moral sense. But the favourite demonstration of the economists, that all distribution is based on the rewarding of the various factors

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of production in accordance with their productivity, has undoubtedly a strong ethical aroma. Value is such a beautiful little word; and to say that, as matters stand, every factor of production is remunerated according to its value sounds as if everything must be for the best in the best of all possible worlds. To say that a man's remuneration depends on his productivity sounds much better than to say that he gets what other people are prepared, and find themselves compelled, to pay him, in order to secure his services. But in fact the first statement means no more than the second. Moreover, in effect you cannot reward 'factors of production,' but only persons. Even if the 'productivity' of capital could really be compared with that of labour, it would not follow that the present owner of the capital had any claim to be rewarded in respect of it, or that it was economically desirable to let him go on owning it. But this is a question which the present structure of Economic Theory effectively covers up. It assumes the identity of capital and the capitalist, the landowner and his land, though they are in reality separable, and it is clearly a matter for discussion whether it is economically desirable to separate them or not. As long as Economics is content to remain merely a study of prices it will never be able to escape from these assumptions; for in making the price relation its centre it evades the formulation of any real theory of production, or of any answer to the question how the fullest use of productive resources is to be ensured. And, on the side of distribution, the taking of price as the focus of discussion evades the necessity of relating effective demand to the real measure of satisfaction derived from consumption by consumers with incomes of different sizes. I know, of course, that the varying utility of a given unit of money to different purchasers is recognised; but the theory of the marginal utility of money comes in only as a sort of footnote to a general theory of value which begins by treating every money demand of equal amount as embodying the same amount of potential satisfaction. Unless this is assumed, the entire theory that free consumers' demand leads to the maximum of economic satisfaction clearly goes by the board.

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Economics, if it is to answer the economic questions that are of the greatest importance to the modern world, must deal in terms of real goods as well as of their prices. But, as we have seen, the difficulty of this is that, whereas it is easy to measure different things against one another in terms of their prices, it seems impossible to find any other common quantitative standard. But this is no reason for confining ourselves to prices, if price turns out to be for many purposes a misleading standard, and if many of the vital questions we want to answer simply cannot be answered at all in terms of prices. I have suggested that 'amount of labour' theories of value, in economists from Ricardo to Marx, had at least the merit of attempting to measure real things in terms of the real amounts of economic resources used up in producing them. These theories thus at least attempted to measure value from a social standpoint; for the social point of view is essentially that of getting the greatest real production in return for effort, and not the largest surplus of profit over cost. Ricardo no doubt assumed that social value and market price would tend to coincide; but Marx did not make this mistake. He realised that the assumption that they would coincide arose from the deeper assumption of an underlying natural law embodied in the capitalist system. The amount of labour theory, as Marx came to understand, could not be reconciled with facts on the basis of an assumed correspondence between prices and values. Orthodox economists realised this too, and discarded the theory as useless, seeking refuge in a study of the behaviour of prices, without any reference to underlying real costs or values. They kept the notion of an immanent economic harmony; but they transferred it directly to the working of the price system. It had, however, no relevance to this system, but only to the 'amount of labour' theory which they had discarded as useless. But is the amount of labour theory, or something analogous to it, useless if we attempt to use it as a measure, not of prices, but of social costs? The real social cost, as distinct from the money cost to the entrepreneur, of any act of production consists of the sum of all the scarce productive resources used up in making it and delivering it to the consumer; and its net

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social value consists of its utility minus its social cost. But clearly we cannot, except in terms of money, actually do this sum in figures. We cannot add up, in figures, so many tons of coal, the use of so much land and fixed capital, so much manual and administrative labour, and get a total which can be simply compared with other totals of a similar composition. Nor can we measure in figures the different utilities of different goods unless we are prepared to use their prices as a means of measurement. We are all used to doing sums of this order in terms of the prices of the various factors involved. The question is whether we can conceive of social costs and social utilities without the support of the price system. I should say that we do even now, in the sphere in which demand has become collective; for the State, in deciding to embark on some important public work, or in giving one such undertaking preference over another, is to some extent guided, not by their respective money costs in relation to any return that can be expressed in prices, but by weighing their social utility against the amount of the social resources their creation will use up. Into such a case price considerations enter largely, and they are of the first importance; but by no means all the considerations can be expressed in price form. Still more is this bound to be the position where the State is in control of the major part of the economic system, and makes through its appropriate organs the main decisions about what is to be produced and what prices are to be charged. For under such conditions it is quite impossible to consider the problem of production simply in terms of money costs. Far more commonly, decisions about prices come after decisions about production, and are their results rather than their cause. Thus, in a country such as the Soviet Union, it is obvious that the decision what shall be produced and what capital developments carried out with a view to the increase of production in the future is not made simply by weighing money costs of production against money prices of resulting satisfactions. The calculations of the Soviet Union under the Five Years Plan are doubtless made in terms of money, and express what is to be done in terms of the money cost of doing it. But the real basis

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of decision is in effect not mainly monetary. What the Soviet Union decides, when it makes its economic plans, is primarily to devote so much labour, so much land and material, so much of its available plant and transport, to producing coal, or steel, or building generating stations, or creating State farms; so much to making textile goods, boots and shoes, and other consumers' goods; so much to improving public utilities and social services, and so on. The decision is not made solely in terms of amounts of labour, or even of labour and other productive resources; but these are the main ingredients in it. 'Have we enough plant or skilled labour?' is a far more pertinent question in connection with some project of a Soviet planning organisation than 'Will it cost too much money?' Money cost is still a factor, I agree ; but it has become a secondary factor. The economist who has been brought up on the modem economic theories which take Capitalism for granted, and try to keep as far as possible within the orbit of the price system, is apt to find such a situation merely baffling, and even to deny that any economic answer is possible to problems stated in such terms. But clearly answers are possible, and I do not see how they can be regarded as non-economic. The conception of amounts of labour or other productive resources is just as economic as the conception of sums of money costs or prices, though the latter can be added and subtracted and the former do not admit of arithmetical summation. If Economics is to confine itself to price measurements, it is in danger of not being able to answer at all most of the economic questions which men will put to it in the next hundred years. For the more the world advances towards Socialism and undertakes the collective regulation of its economic life, the less will prices appear as objective data which can be made the basis of important economic decisions, and the more will they come to be controlled results of these decisions, which will have been made mainly on other grounds. The consumer will no doubt continue to regulate his consumption mainly in accordance with price standards; for he will probably still get a money income, and have to keep within it. But even he may get more of his real income in the form of

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free services, or coupons of various sorts which will allow him to choose, say, between free seats at the theatre and a visit to a rest camp, or a trip abroad. Consumption, even so, will be regulated mainly by prices, as far as the consumer is concerned; but these prices will be more and more controlled prices, and not, even apparently, the results of any natural law, or interplay of supply and demand. Production, on the other hand, will have ceased, over a wide field, to be mainly governed by price factors at all. It will be the result of collective decisions made in terms of the real productive resources available in relation to collective estimates of social need. Consumers' demand, in terms of prices, will doubtless remain as the most important single factor in the estimation of needs. But it will not be the only factor; and it will be itself influenced and conditioned by the existing levels of the controlled prices. Present-day Economics is of almost no help in facing the economic problems of a community such as Soviet Russia, or even of the advance towards Socialism elsewhere. For it has shut itself up in the price system; and if you ask it questions of this sort, it either makes no answer, or answers in terms of an inappropriate series of postulates based on the price economy of the capitalist system. The Economics appropriate to a Socialist community has never been worked out; and this essay is but the merest adumbration of certain of the leading problems involved in working it out. What I am certain is that it will mean giving to Economic Theory a totally new shape, based far more on the study of real productive forces and of the right relationship between the productive and the distributive systems, and far less on prices, which will come to be regarded much less as data than as controlled expressions of the results of concrete decisions about the organisation of production and the distribution of real income.

IX THE USE AND ABUSE OF ECONOMIC TERMS MEN have now been trying for more than two hundred years to think accurately and consecutively about economic questions, and to arrange the results of their thinking in a systematic way. Economics, or Political Economy, has been for at least a century and a half a recognised study, if not a science. Now, it will be generally admitted that no science, and no study partaking of the character of science, can make steady progress, or build on sure foundations, unless it succeeds in defining clearly the essential terms and concepts of which it makes use. In the social studies, absolute precision in the use of terms may not be possible-that is one reason why they can hardly be sciences, in any full sense-but this does not alter the need for as much precision as the nature of the case will admit. For in the social studies as much as in any others, unless we do define our terms with some approach to clarity we can hope neither to reason accurately nor to argue usefully one with another. We may not be able all to agree exactly what meaning can properly be attached to this or that particular term; but we should both try as hard as we can to find agreed definitions, and be at pains, where there is any risk of ambiguity, to be sure ourselves and make plain to our readers in what sense or senses we are using those words which occupy, as concepts, a vital place in our studies. The difficulty of doing this, in the social studies and in Politics and Economics above all, arises from the fact that the concepts we employ and the words in which we express them are alike in everyday use by men and women who are not attempting to deal with political or economic questions in any systematic way. The facts and happenings which the economist or political theorist is attempting to analyse are, indeed, no 212

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more ordinary and everyday than the bodily happenings which concern the physician, or the motions of the stars. But healthy people do not have to think much about their bodies, or be at much pains to know how their mechanism works; and ordinary folk do little about the stars except gaze at them. Everyone, on the other hand, is practically and actively concerned in some degree with politics, and much more with the everyday matters which the economist sets out to discuss. Everyone buys and sells, and is brought so into constant contact with the price system. Most people work for a living, or share in the income of someone who works for a living. Most people either at some time hire labour at a wage or a salary, or are themselves hired. And most people, either individually or through some body with which they are connected, have direct experience of paying or receiving rent and interest, and of calculating profit or loss. Prices, costs, wages, salaries, rent, interest, profits-all these and most of the other essential words and concepts which are the focal points of economic theory are familiar terms and concepts of the market-place and of the home. They are in every man's vocabulary; and they are in common and constant use. Accordingly, they are coloured words, possessing for everyone a large and variable associative content. Those who employ them in every.day conversation, or in business dealings, are usually clear enough for all practical purposes what they mean. The central core of meaning is in most cases not in doubt. But round it is a nebula of associations that varies widely from person to person and from group to group. A 'price' does not mean quite the same thing to a bookmaker and to a housewife. 'Cost' is not the same to the mind of buyer and seller, or to a housewife and an employer thinking of his 'cost accounts'. A stockbroker and a shareholder may use the term 'profit' in different connections and with a difference of meaning in relation to the same block of shares, because the one is thinking of a change in the stock market value and the other of the amount of dividend. Even wages do not mean the same thing to a coalminer and a domestic servant who 'lives in', or rent to a farmer and the tenant of a council house. Interest is almost the only

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term both in common use and pivotal in economic theory that seems to have, for most people, pretty much the same meaning. And, in that case, the economist himself has to be excepted; for he is certainly apt to use the word in a sense very different from the ordinary. The economist has to take these and many other terms as they come to him from the common parlance of everyday people. He has no choice about the matter; for the .things he is setting out to discuss are the same things as these people are discussing every day of their lives. He is apt, however, to grumble that the terms, as they come to him bright and coloured with the associative content of everyday lives, lack precision, and to say that he can do nothing with them as they are. He must first clean and polish, rubbing away the coating of association until he gets down to the hard core of common meaning. So far he is perfectly right; for, though the words will lose their brightness when the colour is rubbed away, the loss is from his standpoint gain, in that he is seeking to analyse rather than to create. He is not poet, to whom the associations of words are their wealth, but scientist, as nearly as may be from the nature of his subject; and the warmth and light of association defy scientific analysis. He is right, then, to do his best to strip bare the words he must use as the co-ordinating concepts of his study, though he must beware of forgetting that he can never strip them quite bare of associative content in his own mind. He is on the right lines, so far; but just at this point it is fatally easy for him to go wrong. For the object of stripping his terms bare of their clothing of association should be to enable him to leave to them that essence of meaning that is the common factor of their everyday use. He should use them as meaning just that which they do mean to most ordinary people-the core of common, everyday meaning without the differences which arise from divergent experience. A stockbroker and a coalminer ought to be able to understand what, essentially and at bottom, a professional economist means by 'cost', or 'profit', or 'wages', fully as much as each of them ought to be able to understand what the other means. To that extent the economist ought to mean by the everyday terms

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he uses the same as the ordinary man. But all too often he does not; and he is under a ceaseless temptation, in his search for exactitude, to slip into meaning by the same word something fundamentally different. This something different will be, of course, something far tidier and far more readily adaptable to the purposes of theoretical analysis than the plain man's idea of the words which he uses. And, accordingly, the economist will be able to play with his refined terms many intricate games of the most pleasing logical subtlety. But there will be most serious disadvantages as well. The first and most obvious is that a very difficult barrier will be erected in the way of the ordinary man's understanding of economic doctrines. For it will be impossible to adopt one terminology in elementary books designed for the general reader, and a quite different one in books intended to be read by specialists. The general reader, therefore, who does want to know something about Economics will find familiar words used in quite unfamiliar senses--even in senses which seem quite contrary to ordinary usage; and, unless he is very patient and clear-headed, he will be very liable to go empty away, and give up the entire study of economic problems as a bad job. He will be, moreover, exceedingly liable to misunderstand the economist's meaning, by taking in the sense he knows words which are meant quite differently. On this ground there is a strong case for keeping familiar words which must be used in Economic Theory as near as possible to the hard core of their everyday meanings. Nor is this all; for the economist himself is a man as well, and accustomed to employing in everyday life the same terms as he uses for instruments of theory. He will be more than human if he does not show a tendency sometimes to slip from using a word in its refined, scientific sense into using it in its ordinary sense without being conscious of the change and its implications. When this happens, his own thought will become confused, and he will tangle up himself as well as his readers in an unnecessary dualism of meaning. But is dualism unnecessary? I believe that it is, and, more than that, I believe that the attempt to create artificial senses

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for ordinary words has been responsible for some of the worst muddles into which even the most famous economists have fallen again and again. Where the economist wants to express an idea for which there is no word in ordinary thought, let him make a new word for the purpose, or take an existing word that is not likely to be misunderstood. But let him keep the familiar words of everyday economic parlance for the things they mean to ordinary men, and never, as far as in him lies, employ them in senses which involve a conscious divergence from customary usage. The economist, when he does use a word out of its ordinary meaning, is usually doing one of two things. He is either narrowing it to something less than it means to ordinary people, or broadening it to something more. In either case, the results are apt to be unfortunate for Economic Theory, as well as misleading to the public. Let me try to illustrate what I have in mind, by reference to a few of the most common and fundamental economic terms. The economist usually narrows the meaning of a current term for the purpose of making it more precise by eliminating from its significance what he holds to be impurities or complications that need separate analysis. Sometimes, in doing this, he prefixes to the current term some such word as 'pure' or 'economic', in order to indicate that he is using it in a special sense. 'Pure' or 'economic' rent, 'pure' interest, and 'pure' profit are examples of which everyone will think at once. But he seldom persists in using these prefixes quite consistently, whenever he is using the term in his special sense; and he is exceedingly apt to make analysis of the abstraction which he has created a substitute for analysis of the common term which he has discarded. Yet the purpose of Economics is not to construct a theoretical system -though that may be an essential part of its method-but to analyse the working of actual economic institutions. It is the impure reality, and not the purified abstraction, that has to be explained, if Economics is to be of practical use. Accordingly, while the economist may be fully justified in creating his 'pure' concept as an instrument of thought, he must always come back from it to the impure reality, and be convinced that the reality

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is more real than the abstraction, which derives all its importance from it. Take the case of rent. The ordinary meaning of the term is, in general, clear enough. It means the sum paid for the hire of land or buildings, or both, or sometimes of business plant or certain other 'durable goods'. The economists, from West and Ricardo onwards, take this notion and abstract from it the notion of 'economic rent'. The theory of economic rent, worked out purely in relation to land, concentrates on an attempt to explain the differential character of the payments made for the use of land, in terms of differences in its fertility and situation. Certain lands are more productive than others: they yield larger crops. Therefore they command a larger rent, because the farmer who tills them will get more produce off a given acreage, and will have more surplus over and above his own keep and that of the labourers he employs. The amount of rent payable for land of any particular quality will depend on the total demand for agricultural produce in relation to the amount and qualities of land available. For enough land will have to be tilled to yield the total produ.ce required; and this will involve the use of all the land that attains to a certain minimum standard of fertility. The 'marginal' land-the land it is barely worth while, but is just worth while, to till-will yield no rent; for it will produce only enough to maintain the farmer and the labourers working upon it, without any surplus. All land of superior qualities will produce more, and will therefore yield a differential rent corresponding to the degree of its superiority over the marginal land. The landlord will be able to extract all this surplus produce as rent, because it would otherwise pay farmers better to cultivate good land than bad; and they will accordingly compete in offering high enough rents for the better land to equalise their returns. Economic rent is thus defined in the classical theory as payment made for the use of the original and indestructible powers of the soil, which are treated as consisting of the fertility of each parcel of land,and of its situation. It has,of course,been pointed out again and again that the original and indestructible powers of the soil can by no means be clearly distinguished from those

IS

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qualities which it owes to the expenditure of capital upon it in clearance, drainage and manuring, or from the effects upon it of good or bad farming, and that situation, in the sense in which it confers an economic advantage, is by no means an original or indestructible quality, but arises from men's actions in settling cities, creating transport facilities, and the like. The qualities which are supposed to give rise to economic rent in the Ricardian sense cannot be isolated from other qualities belonging to a piece of land at any particular time; and it follows that the economic rent cannot in fact be distinguished either. It is never possible to say how much of the gross rent paid for a piece of land is economic rent, and how much is not. This does not mean that the statement of the Ricardian law was not a great step forward in economic thinking. It certainly was. But the step forward consisted in the clear statement that rent is essentially a differential payment, and not in the attempt to isolate and distinguish economic rent as a separate category. For in fact the differential quality belongs to the whole rent in the popular sense of the term, and is not a peculiar property of 'economic rent' in any narrower sense. The rent that will be paid for anything that can be rented at all, except where noneconomic considerations intervene, depends on the differential qualities of the thing rented, whether these qualities are original and indestructible, or destructible and acquired, and whether they are or are not the result of capital improvements. Ricardo's mind was blinded to this truth by his theory of the equal return upon capitals embarked in different employments, which caused him to believe that capital sunk in the land must be deemed to yield a profit at a standard general rate. This theory caused him to state his theory of rent in terms, not of rent as a whole, but of 'economic rent' as a narrower category, excluding the return on capital sunk in the land. He thus substituted a purely abstract and undiscoverable thing for the rent of everyday life, and proceeded to analyse his own concept instead of the real thing. There was some excuse for him in this, because the abstraction arose naturally out of his theory of profit. There is none for those who, having discarded his theory of profit, still cling obstinately to the unreal category of economic rent.

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For economic analysis can be as readily, and far more productively, applied to the rent of everyday life. When a man rents a farm or a piece of urban land, with or without buildings upon it, he is not concerned to enquire how far what he is hiring is an original and indestructible work of nature, and how much a product of human labour and activity. What does concern him is the thing's power to yield him either satisfaction in use, or income if his purpose is to employ it as an instrument of production. The difference between the rents of shops in main and back streets is no more and no less the result of differential capacities to produce income than the difft:rence between the rent of good and bad farming land ; and two farms of equal revenue-producing qualities will tend to yield the same rents whether these qualities are due to natural causes or to the expenditure of capital on their improvement. The notion of 'economic rent' adds nothing to the notion of rent as it exists in ordinary parlance. Indeed, it only introduces a confusion, by suggesting that there are certain isolable and peculiar properties of land, in respect of which it follows a distinctive and peculiar economic law. Or take the notion of interest. The plain man means by interest any payment that is made for the loan of money, in the sense of purchasing power. The economist takes this perfectly straightforward notion, and derives from it an abstract notion of his own, to which he gives the name of 'pure' interest. His object in this appears to be the simplification of the plain man's concept by eliminating from it the element in total interest which can be regarded as a payment for risk. The residue of 'pure' interest is then said to represent the rate at which the marginal savers of money discount the future-in other words, the intensity of their preference for present over future satisfactions. But has this 'pure' interest any real existence, or even any value as a theoretical concept? It is, of course, true that rates of interest on borrowed money are influenced by the relation between the demands of borrowers and the supply of money available for lending, and that this supply depends on the willingness and ability of those who receive incomes to save.

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It is true that willingness to save is affected by men's degree of preference for present over future satisfaction, and that, accordingly, changes in this preference are among the factors affecting interest rates. But the rate at which men discount the future is certainly not the only influence which affects the volume of saving-much less the quantity of money offered for lending, which is by no means the same thing as the amount saved. The distribution of incomes among the members of society is another factor of the greatest importance, and is in part quite distinct from any psychological discounting of the future; for much of the saving of the rich is automatic, out of surplus income, and is affected by the rates of interest obtainable, not directly, but only in as far as these rates make their total incomes greater or less. A more fundamental point is that the element of risk cannot really be eliminated. The risks attached to the lending of money are of two kinds-those which depend on the status and solvency of the borrower, and therefore vary from loan to loan, and those which depend on the stability or instability of the value of money, or of the general economic system under which the contract to pay interest is made. Risks of the first type lead to differential interest rates for different borrowers, whereas risks of the second type lead to differentiation according to the period of time for which the loan is made. For, save at times of exceptional crisis, the second sort of risk is usually negligible in the cases of loans made only for a very short period. It is, of course, recognised that there is no such thing as the rate of interest. There are many rates, varying with the period of time for which the loan is made, the purposes for which the money is to be used, and the status of the borrower. Interest rates are, in one sense, no less differential than rents. But, whereas in the case of rents the differentia lies in the quality of the thing hired, in the case of interest it lies in the position of the borrower and in the conditions attaching to the loan. Within a single monetary system, one piece of money, or one unit of money of account in the bank, is as good as another. The thing borrowed is not differential; but the interest paid upon it is. If, then, pure interest has any existence at all, as a concept

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for analysis bearing some relation to conditions in the real world, it must be expressible, not as a rate, but rather as a series of rates for different classes of loans. For, even if the economist eliminates from his abstract conception of pure interest the differences in actual interest rates which arise from the differences between individual borrowers, in respect of the security of the money lent, he will be left still with the differences which arise from the varying periods for which loans can be made, and are bound up with the instability of money values and of the economic system within which the contract is made. There can, at most, be, not a rate of pure interest, but a graded scale of rates; and, so far from having eliminated risk from the conception of interest, the economist will have to admit that this graded scale is based largely on differences of risk. It may be said that, none the less, the concept of pure interest is of value, because it does serve to isolate one class of risk from another, and because men's rate of discounting the future is, if not the only, at any rate the principal factor affecting the general levels of interest rates, apart from the particular differences arising out of the varying credit of debtors. But is this really so? Surel): the plenty or scarcity of solvent and creditworthy borrowers, or, in other words, the general degree of business confidence existing in a community, is also a powerful influence on interest rates, because it affects the willingness of those who have money to lend it at all, or to lend it to one large class of would-be borrowers as against another. There is no fixed relation between the interest rates charged for loans of different kinds, from day-to-day bank money to industrial overdrafts and from these to long-term debentures. The general condition of credit will react differently on the rates charged for loans of different sorts, quite apart from the differing creditworthiness of each individual borrower. Not only the rate of pure interest, but also any graded scale of rates of pure interest, based on the time element in various classes of loan, turns out to be an economists' abstraction which has no counterpart in the real world. It is not, indeed, an abstraction which would do much harm, if analysis of it were not so often made a substitute for analysis

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of the real interest rates, with which the economist should be concerned. What we want to know about is not a hypothetical level of pure interest, but the causes of the varying interest rates which are actually paid. One element in determining these is doubtless the valuation of future in relation to present satisfaction in the minds of those with incomes out of which they can save. But this is only one element out of a number, and there has been an undue and unproductive concentration upon this one thing in the study of interest by academic economists. Of profits I shall here say nothing, because I deal with the subject in a subsequent essay in this volume. I shall there attempt to show that the creation by certain economists of a concept of 'pure prcfit' has had far more unfortunate results than the attempt to isolate 'pure' interest from the impurities of actual interest payments. But, in this essay; I must now turn from instances of the narrowing of everyday economic terms, in the search for abstractions more amenable to theoretical analysis, to the opposite tendency to broaden the meaning of other terms, so as to include within them more than is included in non-professional speech and thought. The most notable instance of this broadening is the use by certain economists, from Adam Smith onwards, of the word 'wages'. It is well enough understood in the everyday world what constitutes a wage. A wage is a contractual payment made by an employer for the hire of labour. It may indeed be a matter for practical dispute where wages end and salaries begin; but for our present purpose the distinction between wages and salaries does not matter. They are both essentially contractual payments for the hire of one or another form of labour. But the economist, setting out from the observation of wages in this everyday sense, is struck by the fact that a wage is a payment for labour, but that not all labour is remunerated by what is ordinarily called a wage, or upon contractual terms. The independent worker (say the boot repairer working on his own) and the personal employer (say the master in a small workshop) also labour; but their remuneration is not commonly regarded as a wage. It differs, indeed, sharply from what is ordinarily called a wage in that it is not contractual, but con-

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sists of an uncertain revenue of surplus--excess of receipts over the costs of production. The economist, however, would like to find a word broad enough to cover all forms of payment for labour, or personal service; and sometimes he seizes ruthlessly on this word 'wages', and insists on using it in this inclusive sense. He begins to speak of 'wages of management', 'wages of superintendence', of a 'wage element' in business profits. As long as he remains consciously, in using such phrases, within the realm of metaphor, no great harm is done. But they are apt to grow upon him, and to be made the foundation of theories which seek to isolate a 'wage element' in other classes of income and to treat this 'wage element' and contractual wages in the ordinary sense under one head, as payments which rest on a common basis of personal service, and can therefore be subjected to a common analytic process. As soon as he does this, one of two things happens. Either he ceases to have a theory of wages, in the sense in which the term is ordinarily used, and therefore fails to deal with the question he set out to answer, and ought to answer if Economics is to be of practical use. Or else he goes on formulating his theory of wages just as he would have done if he had continued to use the term in its everyday sense, and then imputes to the 'wage element' in other forms of income the same behaviour as he discovers in the actual wages paid under contract to employed persons. In the former case his theory of wages suffers, in the latter his theory of profits, and his analysis of the process of income distribution as a whole; for his enlarged wage category is no longer a real category of distribution at all. It is easy enough to see why this happens. Just as the desire for tidiness causes the economist to narrow the meaning of some terms, so it causes him to widen the meaning of others. This particular widening, in the case of wages, is based on a desire, natural but unfortunate, for symmetry in the different aspects of economic theorising. The economist, in search of immanent harmonies in the economic order, wants the categories of production and of distribution to correspond. He begins--or rather his forerunners, the classical economists in this country, began-with a study of production. They found

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three factors of production-land, labour and capital-to which their successors added a fourth-business enterprise. To these three factors of production three-or four-classes of income receivers must, if possible, be found to correspond. Between land and landlord-rent receiver-the correspondence was easy to find, though, as we have seen, it was insisted that the landlord, qua landlord, received only 'economic' rent, and what he received on account of capital sunk in the land was regarded as properly profit rather than rent. To capital corresponded profit, and to labour wages. Interest was at this stage regarded as only a sub-form of the general category, profit. Then came the refinement which marked off the entrepreneur function for separate treatment, and recognised business enterprise as a distinct factor in production. A fourth category of distribution was therefore needed in order to preserve the balance; and this was provided by erecting interest into a distinct category corresponding to capital, and treating profit, as apart from interest, as the reward of enterprise, as apart from the provision of capital. There were, however, in this revised definition of the categories of production and distribution all the sources of the utmost confusion of thought. Adam Smith thought of the capitalist qua provider of capital as receiving profit, which included interest, and of the same person qua entrepreneur as receiving a sort of wage. The categories of production and distribution corresponded to each other; but they did not correspond to the actual categories of the business world. For capital and labour were commonly united in the person of the entrepreneur; and his remuneration had to be regarded as partly wages and partly profit. But in fact he received only one form of remuneration, and there was no possible means of determining how much of it was due to his capital and how much to his labour; for his product was in fact a joint output . of these two. The trinitarian formula of production and distribution, in effect, purchased consistency at the cost of ignoring the actual forms of production and distribution in the business world. It led away from any analysis of the real forces determining the relative positions of the different economic classes in the

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productive system, or their relative shares in the product. But the attempt to introduce greater realism by adding a fourth category to both groups made confusion worse confounded. On the side of production, it cut the old category of labour into two, by separating the entrepreneur from the employee. That seemed sound enough; for the two did clearly hold quite different places in the productive system. But on the side of distribution no real correspondence could be found. Labour and wages balanced well enough; and so did land and rent, subject to the difficulty noted above. But the alleged correspondence between capital and interest on the one hand, and enterprise and profit on the other, was utterly unrealistic and absurd. For the difference between capital and enterprise is a difference between things and persons as factors of production, whereas the difference between interest and profit is the difference between money-lending on contractual terms and realisation of an uncertain surplus of receipts over costs. There is no evidence at all either that all capital earns interest, or that all profit goes to enterprise. Indeed, the evidence of the real world is manifestly against any such conclusion, unless we are to define both profits and interest in senses utterly remote from those which the terms ordinarily bear. There is, in fact, no correspondence at all, under our present economic system, between the factors of production and the classes or groups of income receivers. The categories of production and distribution cannot be made to correspond ; and any attempt to make them correspond is bound to result in either falsification of the facts, or barrenness. Labour, in the wide sense of personal service, may be remunerated either by a wage or in the form of profit. Capital may draw its dividend in the shape of a profit, or interest, or rent. And even land may be paid for in profit, where it is tilled by an occupying owner, or owned and not rented by the business firm whose factory, mine or shop stands upon it. It is, of course, possible so to define rent, wages, profits and interest as to treat them as the payment for land, labour, enterprise and capital, irrespective of the actual ways in which these factors of production are applied or the income from them distributed among the various claimants.

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But the result will be a theory of distribution which bears no relation to the facts of the business world, and throws no light upon the real problems of the distribution of incomes in the world of today. The term 'wages' ought therefore to be reserved exclusively for contractual payments made to employed persons; and any attempt to equate it to the remuneration of labour in all its forms should be resisted. There is doubtless in business profit an element which can properly be regarded as remuneration of labour-the labour of the entrepreneur. But this element is not in any real sense a wage; and it cannot be isolated. It is impossible to say, when a man applies both his capital and his labour to a single act of production, how much of his total return is to be attributed to each of these factors. All attempts to do this involve, in effect, the attribution of a fixed value to one of the two, and the treating of the residue as attributable to the other; and the fallacy is evident from the fact that either can be plausibly regarded as the residuary claimant. It is possible in theory to begin by isolating an element of labour, and attributing it to a quasi-wage, equivalent to what the entrepreneur's labour would be worth if he hired himself out as an employee. The residue is then regarded as remuneration of capital. Or it is possible to begin by isolating an element of interest on the entrepreneur's capital, equivalent to what it would earn if he lent it to someone else instead of using it himself. The residue is then regarded as the reward of enterprise. It is possible to do either of these things in theory; but neither of them can be done in practice. For it cannot be determined either how much the entrepreneur could really get by hiring himself out as an employee, or on how much capital or at what rate his claim to interest ought to be calculated. Consequently, the theoretical division of his total remuneration into two separate clements leads nowhere, and throws no light at all on the forces which really affect the distribution of income in the business world. The moral of this is that the economist, unless he is merely engaged in playing a pleasant game of mental acrostics, should always keep, in his use of everyday economic terms, as close as

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possible to the actual usage of the business world. He should neither narrow a term to mean something much less than the ordinary man means by it, nor widen it to cover much more~ For his object is to study and interpret the actual conditions of production and distribution; and current usage is based upon these conditions. If the economist wants a term to describe something which has no everyday name, he can, of course, invent one; but he had better avoid taking a familiar term and making it mean something other than it ordinarily means. And, above all, if the economist invents an abstraction, by isolating some single element in a factor of production or in one of the categories of distribution, he must beware of substituting his analysis of the abstraction for an analysis of the real thing. Nor is this all. He must beware as well of mixing up the two things-of slipping unconsciously from the abstraction to the real thing, and back again. This is most difficult to avoid if he uses for the abstraction a familiar name, such as wages, or profit, or rent, which is bound to have in his own mind, as well as in the minds of his readers, the colour and association of its concrete meanings in the everyday business world. Of course, nothing that has been said in this essay is meant to suggest that the economist ought not to use the method of abstraction, provided that he keeps the distinction between the abstract and the concrete always clear in his own mind, and does not confuse the minds of his readers by employing familiar terms in unusual and misleading senses. Abstraction is, at certain points, a necessary, fertile and formative method of economic analysis. It is often necessary, for purposes of analysis, to break up a concrete phenomenon, or group of phenomena, into its constituent elements, to study one by one and abstractly the numerous forces playing upon a complex economic situation, and to find names for the abstractions thus used as the instruments of the analysis. Certainly Economics would have made much less advance towards precision than it has done if it had totally eschewed this method. But it is none the less necessary to bear the dangers of the method always in mind. For the various forces which go to constitute a complex economic situation act, not independently

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upon that situation, but also on one another; and the final result of their action is not a mere sum of the particular causes, or even a mathematical resultant of their mutual interactions, but something in which causes and effects, and qualitative as well as quantitative forces, contribute to the result. For this reason, the favourite method of beginning abstractly with the supposition of a single force acting unimpeded and alone, and the adding in succession a series of other forces, as a means of approach by stages to the concrete reality, is apt to yield highly misleading results; for the essence of the real forces is that their operation is not successive, but simultaneous, and it may make all the difference which force is selected to begin with, and in what order the other forces are assumed as coming into play. There is no bridge of this sort from the abstract to the concrete ; and it is usually best to attempt no such crossing. The 'pure' Economics of abstract analysis is invaluable to the economist as a training in methodology; but when he wants to throw light on a concrete economic situation he had better begin with that situation as it is, in all its complications, and seek to unravel it, than start with a simple abstract assumption far distant from the reality, and then try to approach concreteness by the successive addition of a series of further abstractions. Nor, I think-to take another favourite trick of a good many economists-is it legitimate to take as the central point of economic study the assumption of a static society, to work out the fundamental terms and concepts in relation to such an abstract society, and then to treat the dynamic influences playing upon real societies as mere disturbances of an assumed underlying condition of static equilibrium. For human societies, at any rate in modern times, are not in their nature static. The 'disturbances' are fundamental to them; and any realistic analysis of their working must proceed upon dynamic assumptions. There is doubtless, in the economic world, a constant search for equilibrium-a proper and self-reproducing balance of forces. But this equilibrium itself is not static. It is the balance of a complex object moving with great velocity, and with constant readjustment of its parts. This involves, in some degree, that the fundamental terms of

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economic theory cannot be static either. Rent, or profit, cannot mean just the same thing to a modern economist as it meant to Ricardo, or to a Frenchman as to an Indian, or even to an Englishman or an American. For even the capitalist system is not everywhere quite the same, even in its foundations; and the familiar economic terms are bound to be shaped, in both time and place, by changes and differences in the actual conditions which they are used to describe. The economist in search, above all, of scientific precision will doubtless find this dynamic and historical character of the economic process often a great nuisance. That is why theoretical economists and economic historians so seldom combine happily, or even seem able easily to understand each other's ideas. But the economist who wants above all to be realistic in his study of the economic workings of modern society will have to accept the limitations which this realistic approach involves; and he may reassure himself that his loss of abstract precision will be more than made up to him in other ways-by the broadening and enrichment of the subject-matter with which he will be able to deal, and by a closer and more fruitful contact with the minds of those who are not professional economists, but have to be practical economists, struggling with the tangled economic problems of the everyday world. For Economics, in the world of today, is not merely everybody's business, in the sense that everyone has to practise it and make for himself economic judgments which may be good or bad, but also in the sense that an endeavour to understand it, in its wider public bearings, is nowadays an integral part of intelligent citizenship. Democracy, if it is to be made real, implies a democratic understanding of Economics; for Economics and politics can by no means be kept apart. The economist, then, has now a great mission of public education, to be reconciled with his duty of not pandering to the vulgar. He has to hold up the quality of his thought, while at the same time he has to simplify its expression and keep it near to ordinary usage. The most hopeful development in recent economic thinking, especially in the United States, is the advance which is being made towards more realistic methods of economic analysis.

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Adam Smith had this broad, public conception of the place and method of economic studies to the full. The nineteenth century largely lost it; and it is the mission of economists in our own day to get it back, on a yet broader basis corresponding to the wider political and economic horizons of the modern world.

X

THE NATURE OF PROFIT IT is, I think, a highly remarkable fact that nearly two centuries of consecutive economic theorising should have left economists still hesitant, ambiguous and at conflict in their uses of a term which every one of them is compelled, by the very nature of his subject-matter, constantly to employ. The economist takes his terms from the market-place; and he has often, in order to fit them for systematic use, to assign to them specialised meanings derived from popular usage, but importing into them at the same time an element of precise definition and of abstraction from the complex phenomena of daily life. Most of the terms of Economics offer some resistance to this treatment; and the economist can by no means rid them wholly of the wealth of association which belongs to them in ordinary speech. They come to him coloured and enriched by sentiment and usage, and no amount of purification in the wash-tub of abstract theory can purge their associations quite away. It has often been urged that it might be better, on this ground, for the economist, instead of taking and adapting to his purpose the warm and coloured terms of the market-place, to follow the example of many of the sciences, and to devise for himself new words that he could make all his own, and compel to mean precisely what he required. But the common verdict is strongly against this view; for Economics is of value as it serves to explain the phenomena of daily life, and any retreat by it into a realm of pure abstraction would deprive it of much of its value, and certainly of most of its appeal. There is thus an overwhelming case for the use of such ordinary terms as will serve to keep the economist always closely in touch with the real phenomena of the economic world ; and, in fact, most of the terms adopted by him from ordinary speech have yielded reasonably well to his 231

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guardianship, and have submitted, with or without a special adjectival dress, to the importation of meanings precise enough for his purpose. The 'rent' I pay to my landlord, and the 'rent' of which I read in Marshall or Ricardo, different as they are, resemble each other enough for their underlying community to be easily recognised. The economist has, on occasion, to make the matter clear by calling the latter explicitly 'economic rent'; but more often the context makes his meaning plain without special invocation of the adjective. Similarly, the term 'interest' can be given a sense precise enough not to lead to much confusion, though here again he is compelled on occasion to speak of 'pure interest' or 'net interest' rather than of 'interest' sans phrase. 'Wages' is a good deal less precise; but perhaps its lack of precision as an economic term does not, in most discussions, greatly matter. With 'profit', however, the situation is quite different. For in this case not only are economists still widely at variance about the meaning properly to be assigned to the term; but, even when they have framed definitions of it to their own satisfaction, they have still often much ado to remain faithful to them throughout their handling of the subject, and in some cases at least they appear to evade the difficulties only by failing to formulate any clear definition at all. This is a serious matter, because the question of profit lies obviously at the very heart of economic analysis. The entire theory of distribution is based upon an attempt to study the payments or rewards meted out, under this, or any similar, economic system to the various factors of production, and to formulate the laws or tendencies regulating the sharing of these payments among the various claimants. To any such analysis, which includes profit at all, a clear conception of the nature of the profit return is evidently indispensable. Yet there is no question in Economics on which the different schools of thought still offer answers so divergent and, in many cases, so hesitant and elusive. To one writer, profit is a normal and fully justifiable incident of the economic process, while to another it is normal but wholly unjustifiable, as based on a monopolistic advantage; and to yet another it is justifiable, but exceptional,

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in that it depends either on a dynamic, as opposed to a static, economic situation, or on a special assumption of risks or uncertainties demanding an exceptional reward. There is no fixity in the senses which different economists assign to the term 'profit'; and there is no consistency in the arguments which they advance by way either of justification or of condemnation of the existence of profit as a distinct economic category. These continuing ambiguities have their roots deep down in the history of economic thought. In this country, the term 'profit' or 'profits' begins its career, as a technical word of economic science, with Adam Smith. It appears in his writings chiefly as 'profits of stock', one of the three rewards to the three vital factors of production-land, labour and capital. The owner of land receives a rent, the owner of labour a wage, and the owner of capital, or stock, a profit. Adam Smith distinguishes between the so-called profit of the market-place and the stricter profit of economic theory, but only by eliminating from the latter an element which appears in many of its manifestations to varying extents. This excluded element consists of the 'wages' which are to be assigned to the entrepreneur, large or small, in return for the expenditure of his own time and trouble. This, in Adam Smith's view, i's properly to be called, not 'profit', but wages; and profit remains as a residue after these wages of management or enterprise have been deducted from the gross return. Profit, in this sense, with the wages of management excluded, clearly includes what a modern economist would call 'interest'. But it does not consist solely of 'pure interest'; for Adam Smith suggests that twice the current rate of interest is normally regarded as constituting a 'fair profit'. Yet, though here Smith seems to differentiate clearly between profit and interest, elsewhere the difference is usually ignored. Profit and interest are treated, not as identical, but as obedient to a common law; and, in the general theory of distribution, interest, as a separate factor, receives no consideration at all. It appears, by implication, only as an element in profit; and 'profits of stock' are clearly understood as including interest on capital along with other elements, which are nowhere clearly defined. 16

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Ricardo and James Mill carry matters no further. Indeed, both of them, considerably more than Adam Smith, use the term 'profit' without analysis or definition; purely as a term of the market-place, to which it is unnecessary for economic science to impute or assign a precise and consistent meaning. Ricardo divides the product of industry between rent, wages and profit without ever clearly explaining in what he supposes profit to consist, but leaves it evident that in it he includes the entire return on capital, and to be presumed that he includes also what Adam Smith had called the 'wages' of management. Ricardo's farmer seems to be remunerated wholly by a profit, whether his return comes from his own labour, or superintendence, or from the capital which he has sunk in the land. The landlord ·gets rent, the labourer wages, and the farmer profit; and between these three economic categories the entire produce of the land is divided. Possibly we are meant to regard landlord, labourer and farmer as economic abstractions rather than as individual persons, and, just as the landlord may farm his own land, and so draw, in effect, both a rent and a profit, so he may labour on the land, and so draw both a profit and a wage. But, even if this is the logical inference from Ricardo, it is certainly not stressed or explicitly stated; and in Ricardo's Principles, as in most of the early economists, far more stress is laid on the economic justification of profit than on the explanation of its nature. Malthus, indeed, building on Adam Smith, goes a step further, and attempts a division of profit into two parts-a net profit, which appears to be the equivalent of interest in modern Economic Theory, and another element, which is defined as the return or reward received for industry, skill and business enterprise. Here is an attempt to distinguish between the return on capital, as such, and the special return received by the entrepreneur for his services to the work of production. McCulloch follows Mal thus in this twofold division of the profit category, but makes the second element at once more explicit and more confusing by describing it as the return not only to the industry, skill, and enterprise of the entrepreneur (whose function had been already stressed in France by]. B. Say), but also for the

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assumption of non-insurable risks of business undertaking. He does not, however, attempt to distinguish the payment for risk from the payment for industry, skill and enterprise, but lumps these in together as the second factor in profit, making them a joint residue after interest on capital has been separately reckoned. The interest element remains, moreover, in both Malthus and McCulloch, a part, although a theoretically distinguishable part, of profit, and not an economic category separate from profit. And John Stuart Mill preserves this unity of profit as the total return to the capitalist, whether it be derived from his industry, skill or enterprise, from his capital, or from his assumption of risk. The elements in profit are separately catalogued; but at this stage in Economic Theory no attempt has yet been made to break up the profit category itself. Thereafter, the paths diverge. Jevons and Marshall carry on the classical tradition of analysing the component elements in profit while preserving the unity of profit as the total gains of the capitalist entrepreneur, while, from Walker onwards, the Americans, and some European economists, attempt an actual dissolution of the compound 'profit' category into its component parts. Walker attempts to isolate the interest element, and arrives at a new conception of profit as consisting of the gains of the capitalist entrepreneur minus those elements which represent the interest on capital-his own or others--embarked in his business. Walker's successors push the process of dissolution still further, not merely isolating the 'wage', as well as the interest, element in profit, but attempting to divorce this element from it, and recognising the payment for risk as a separate 'cost' of the economic process present both in 'interest' and in 'profit', and therefore separable from them both, and finally erecting into a distinct economic category such gains as result from a preferential position of monopoly. The logical culmination of this process is found in the writings of Professor J. B. Clark, who, by successive abstractions from the profit category, has almost made profit disappear from the world of Economics, or rather has eliminated it totally from his abstract 'static' condition of that world, and permitted its survival only as a factor of change in the dynamic world of economic revolutions.

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This 'dynamic' theory of profit is not without its rivals. In Great Britain, and to some extent in the United States as well, the narrowing of the profit category has pursued a different course. Profit has been represented as the return to, or reward for, the service of risk-taking. When it has been pointed out that 'risk' is not peculiar to profit-making enterprise, but besets every form of economic activity, two different replies are offered. One school of thought, restricting its view to the yields included in the term profit as it was widely used by the earlier economists, insists on a strict interpretation of the theory of interest, as including only a 'pure interest', which embraces no element of payment for risk, and classifies the entire return for risk-taking, both on borrowed money and on money directly ventured by its owner, under the category of profit; while another attempts to discriminate between different classes of risk, and represents those 'risks' whose incidence can be anticipated, and therefore guarded against by insurance, as giving rise only to an interest charge sufficient to cover the actuarial value of the risk, whereas those risks which are uncertain (and therefore insurable, if at all, only by the transference and not by the elimination of the risk) are represented as the source of profit (and also, of course, of loss) in the true sense of the term. We have thus a number of different senses of the term 'profit', for all of which it would be possible to claim some respectable authority in the world of Economic Theory. It will be sufficient, for my purpose in this paper, to set out only the chief of these senses, neglecting minor variants, or even variants which, important in themselves, do not greatly affect the point of the present discussion. I. 'Profit' includes the total gains of the capitalist, whether these are due to the employment of his own labour, or of 'capital' belonging to him or under his control, and whether these gains are due to the assumption of risks of any kind, insurable or uninsurable, to his possession of some sort of monopoly, or to any other cause. 2. 'Profit' includes these total gains, minus interest on capital employed in the business. This sounds simple; but in fact it admits of a number of different views. Thus, the 'interest'

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excluded may be only interest on borrowed capital, or may include a computed interest on all capital sunk in the enterprise, whether borrowed or not. And the interest may be only pure interest, or may include a risk payment as well, at any rate in the case of borrowed capital. 3. 'Profit' includes total gains, not excepting interest, minus a 'wage' element, regarded as representing the reward due to the industry, skill and enterprise of the capitalist entrepreneur. This at once raises the difficult question of the basis on which this wage element is to be reckoned. Is it to be measured by the 'wage' which the entrepreneur could command as a salaried servant, or otherwise, in some other business, or by the addition which his activities may be estimated to make to the income-producing qualities of the business in which he is actually engaged? Or is there some other basis of reckoning? 4· 'Profit' excludes both 'interest' and 'wages', on one or another of the bases mentioned, and thus includes only payment for risk, except in so far as this has been included under interest or wages, and such other elements in the total gains of the capitalist as have not been included under one or another of these three heads. Profit, in this sense, becomes a term connoting primarily, but not necessarily to the exclusion of all other elements, a payment for some form of risk-taking. 5. 'Profit' excludes both 'interest' and 'wages', in one or another of the senses mentioned above, and also such risk payments as, by virtue of the predictability of the risks which they involve, are insurable in such a way as to eliminate the risk by spreading it, and can thus constitute a fixed and ascertainable charge upon costs of production. Profit, in this sense, becomes a term connoting primarily, but not necessarily exclusively, a payment for certain specific kinds of risk, which Professor Knight has attempted to distinguish from other risks by the term 'uncertainty'. 6. 'Profit' excludes both 'interest' and 'wages' and 'risk', both of an insurable and of an uninsurable kind-both sorts of risk being regarded as charges to be allowed for in the supply price of capital. Profit, in this sense, is commonly represented as the result of the dynamic character of the economic processes, and

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regarded as non-existent in a 'static' economic world, in which every factor of production would receive its due payment, and nothing would remain as a profit 'residue', save in the special case of monopoly profit. 7. The seventh definition of 'profit' rests on a somewhat different basis. It represents 'profit' as essentially the return secured by the exercise of a certain kind of economic monopoly, based on the exclusive command of the means of production. On this view, monopoly profit appears not only as a peculiar phenomenon where competition between rival capitalist producers has been eliminated, or limited in its scope, but as a normal factor of capitalist production in general, arising from the monopoly, by a limited class or group, of the means of production, and the exclusion of those outside this class from an equal, or from any, chance of direct access to the means of production. This last is, of course, a variant of the Socialist or Marxian view, relating profit to the Marxian concept of 'surplus value'. These seven views of the nature of profit admit, it will have been obvious as I have outlined them, of an almost infinite diversity of variations and combinations. Even if the seventh, or distinctively Socialist, group be for the moment omitted, there is room enough for diversity among economists of the various orthodox schools; and in fact hardly any two writers agree in the precise sense which they assign to the term. Writers of these schools vary, indeed, between two extremes. At the one extreme, they present their readers with a widely inclusive definition of profit, but do not attempt any precise definition of the nature of profit as such, or make any considerable use of the conception of profit as such in their writings; while, at the other, they attempt precise definition of profit by such a narrowing of the term as results, if not in the total disappearance of the profit category from the economic world, at all events in its survival as due only to exceptional causes or frictions in the working of the processes of production and exchange. The English school, on the whole, favours a wide interpretation of the term, unaccompanied by any attempt to assign to it a precise meaning, or to analyse carefully the place of profit in the system

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of production or distribution; while the American school has in the past favoured a narrow use of the term, and, in analysing carefully the nature of profits, so limited its meaning as to represent it as primarily the result of exceptional or unavoidable imperfections in the working out of economic laws. To a very great extent, this ambiguity in the use of a vital economic term seems to me to result from the employment, at the outset, of a false analogy. We begin, in Adam Smith and in Ricardo, with a law of distribution which assigns to the three factors of production-landlord, labourer and capitalist entrepreneur-their respective shares in the product of the economic process. But it appears to be ignored in this analysis, and in many subsequent analyses founded upon it, that these three factors are not all rewarded in the same way. The landlord, in return for the land of which he is the lawful owner, and the labourer, in return for the labour power of which he is the lawful owner, receive contractual payments. Rent and wages are, in other words, actual payments made under contract to the possessors, recognised by law, of land and labour power. Profit, however, is never under any ordinary circumstances a contractual payment, or indeed a payment at all. No one, save in the highly exceptional case of a 'cost plus profit' contract, ever contracts to pay anyone else a definite amount of profit. The undertaker, in tendering for a particular contract, may estimate the price at which it will pay him to undertake the work by calculating his 'costs' and adding thereto a percentage of profit. But this calculation is his own private affair, and, if he gets the contract, his estimates may not be borne out in the actual execution of the work. He tenders, save in the exceptional case noted above, at a fixed price; and the person or body which accepts his tender agrees to pay him, not a stipulated profit, but a stipulated price, out of which have to come all his expenses of carrying through the work. His profit, if it exists, thus appears, not as a contractual payment, but as the residue of a contractual payment, after his outgoings in the execution of his contract have been duly met. I am not, of course, suggesting that there is any element of novelty in this conception of profits as a residue-a difference

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between outgoings and receipts. Such a conception is implicit in all the definitions of profit that were mentioned above, and is involved in the very idea of profit. What I am suggesting is that this conception of profit as a residue sharply marks it off from the other factors in the distributive process with which it is usually equated, and that the failure to make due allowance for this difference is the main cause of the failure of successive generations of economists to formulate a satisfactory theory of profit. They agree in treating profit as a residue-though, if I were concerned with historical analysis of the theories of profit, I should have to admit certain reservations and qualifications of this statementl-and these differences consist mainly in their more or less determined attempts to reduce the amount of this residue by the abstraction from it of certain alleged 'quasicontractual' elements. But, while treating profits as a residue, they fail to pay sufficient regard to the fact that this residuary character marks it off sharply from the other forms of payment with which they are comparing or equating it. Accordingly, they treat it as a quasi-contractual element in the normal expenses of production, and thus attempt to eliminate its essentially residual character by representing it as a payment whose amount is fixed, no less than that of directly contractual payments, by the inexorable operations of an economic law. In modern economic writings, this alleged law is commonly formulated as a law of substitution at the marginal point of indifference. The complementary factors of production-land, labour and capital-are employed in such combinations as tend to the creation of the maximum amount of utility, and the employment of each factor is thus pushed to the point at which each yields, in respect of the final or marginal dose, a marginal return. The remuneration accorded to each factor thus depends upon its marginal utility, or its marginal productivity, which is the same thing; for, if this were not so, the principle of substitu1 I.e., where the theoretical treatment of profits appears to be based on treating it as equivalent to interest, and having a tendency to equality of returns between different employments. Thus, the residual charcater of profit disappears in the Ricardian analysis, which makes the landlord the sole esiduary legatee of the productive process.

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tion would ensure such rearrangement of the productive forces as would restore the lost equilibrium of the marginal doses. Now, this theory, which is evidently not devoid of truth, is clearly conceived in terms of contractual payments. The entrepreneur is conceived as hiring, in return for fixed contractual payments, so much land, so much labour, and so much capital, and as varying his effective demand for each of these factors of production in such a way as to make the remuneration paid for each depend on its marginal productivity. It is pertinent to observe that, even in these cases, it is upon the anticipated, and not upon the actual, productivity of the various factors that the marginal demand of the entrepreneur is based, and that loss or gain may result from fortunate or unfortunate errors of anticipation on his part. He cannot kno·zo the marginal productivity: he can, in the real world, only anticipate what he thinks it is likely to be. But, apart from this point, to which I shall return later, we have, so far, a picture of the entrepreneur, not risking his own or anyone else's resources in production, but simply hiring the services of land, labour and capital in return for certain contractual payments fixed by the interaction of his and other entrepreneurs' demands and of the valuations placed on these services by their legal possessors. In practice, of course, the entrepreneur's contract cannot be absolute. He may contract to pay so much for land, so much for labour, and so much for the capital which he hires; but unless he has large personal resources which he is not venturing in the enterprise for which he is hiring the resources of others, all those who place resources at his disposal must involve thems Ives in some degree of risk-risk that the entrepreneur may not keep his contract. Debentures and loans vary greatly in effective security: landlords have been known not to get their rents; and labourers have both failed to secure the wages due to them for work done, and been flung out of a job before the contracted period of their service has expired. Risk attends the hiring out of any of the factors of production to the entrepreneur; and, to some extent, the price charged for the hiring contains an allowance for the risks involved, or at least for the risks anticipated when the contract is made.

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My main point, however, is that so far we are wholly in the realm of contract-albeit of contracts involving risk. The promised rewards to land, labour and capital are so far purely contractual payments, consisting of rent (though not of pure 'economic' rent), of wages (though of wages including, perhaps, a risk element based on the uncertainty of continuous employment), and of, not profit, but interest, involving a contractual return to capital varying with the anticipated risk attaching to the loan. But the entrepreneur who, by promising these contractual payments, has possessed himself of the vital factors of production, is not working for a contractual return which he will be able to retain as his own reward of enterprise. Two cases here present themselves. In the commoner, the entrepreneur is uncertain of the prices which the goods produced with the aid of the land, labour and capital under his control will actually command-in other words, he is contracting to make certain fixed payments in anticipation of an unfixed return. In the less common case, where he has taken on a contract to deliver certain goods at a fixed price-for example, a house or group of houses-he is still uncertain of the total costs in which their production will involve him; for he has not been able to reduce all the payments which he has to make to a contractual form or to a fixed amount. He does not know precisely how much material he will have to use, how much labour it will take to complete his contract, how long he will have to pay interest on the capital which he has borrowed for the purpose. His reward is therefore uncertain, even if he is working wholly with land, labour and capital borrowed on contractual terms and on a piece of work for which a contractual price has been fixed in advance. He is a risk-taker, even if his risk is taken wholly with resources, apart from his own time and trouble, that are provided by others, and involve their sharing in some degree in the risks which he has assumed with their help. In such a case as this, the contract is in due course executed. The price is paid for the completed work. The costs of the hired land, labour and capital add up to a certain amount. The entrepreneur has either enough to pay all these costs, with or without something over for himself, or he has not. If he has

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not, those who have provided him with the resources will have, according to the precise terms of the contract, varying claims upon any personal resources he may possess, apart from the actual price paid him for the work. If these resources are ample to meet every contingency, the suppliers of the resources need have incurred no risk, and may accordingly have supplied land, labour and capital to the entrepreneur on terms involving no insurance against risk. If he has no adequate resources, the risks of those who have supplied him may, or may not, have been adequately covered by the prices which they have charged him for the required accommodation. The risk essential to the contract must fall on someone; but it may fall, according to circumstances, in different ways-upon the entrepreneur himself, if he has resources which are not risked in the contract; upon those who have supplied him with the resources for its execution, and may have exacted from him a premium for the assumption of the risk; or, if he has himself insured against loss on the contract, or if any of his creditors have similarly insured, upon those who have provided the necessary insurance. In the case of an entrepreneur working wholly with borrowed resources, apart from his own trouble and toil of superintendence (and even without these, if he has delegated the entire work to salaried deputies), the profit upon the transaction, if there is any profit, seems on the face of it to consist of the net gains of the entrepreneur after all his costs, including the cost of borrowed resources and any necessary insurances, have been met. We appear to have here a plain case of pure profit; and the plausible view seems to be that which represents this profit as the reward for the assumption by the entrepreneur of a certain kind of risknamely, the uncertainty attaching to the economic outcome of the undertaking. But even this is not so clear as it sounds; for the actual risk assumed by the entrepreneur clearly depends on the extent of the resources which he possesses, apart from his own toil and trouble expended upon the contract. If he has no other resources, he must shift the risk, because he is not in a position to bear it himself. And he will probably have to pay for this shifting of the risk in higher interest, perhaps higher rent, and possibly higher wages to those whom he employs. He

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may, it is true, not have to meet all these charges; for he may succeed in hiring labour, or even some other factor of production, without payment of the appropriate charge for risk. But this will represent the acquisition of a productive factor at less than its true value, under the assumed conditions, and can only be the result of some friction, or maladjustment, of the economic order which gives him an exceptional advantage. Now, the assumption of most schools of orthodox economists, as I understand it, is that the operation of the law of substitution will result, subject to the inevitable frictions of the economic system, in reducing the normal gains of the entrepreneur, under the conditions here assumed, to a remuneration equivalent to the marginal utility, or productivity, of the toil and trouble in which he involves himself by the assumption of the contract in question. His profit, unless he enjoys any exceptional position of monopoly or luck, will be normally of the nature of a wagea wage appropriate to the industry, skill and enterprise which he applies to the work of production. And this appropriate wage will be determined, like other wages, by the marginal productivity of the particular qualities of industry, skill and enterprise of which the entrepreneur happens to be possessed. This beneficent result will be secured by the operation of the competitive principle; and, even under conditions of combination, the same result will largely obtain, because combination seldom assumes the form of absolute monopoly, but usually, as in cartels, involves some sort of internal sharing of rewards externally determined between the members of a limited group. This view seems to me to rest upon a mistaken analogy. It is true that the lenders of available resources-land, labour and capital-by competing one with another, determine within each group, and to some extent between groups, their respective rewards by a competition which results in the employment of each according to its marginal productivity, in the sense of its money value to the hirer. But to the extent to which this is true-and it is by no means wholly true-of contractual payments, is it true of the work and remuneration of the entrepreneur himself? It approaches most nearly to ·truth in the case which we have so far examined, in which the entrepreneur is

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working wholly with hired resources, at any rate apart from his own toil and trouble. But even in this case, the ability of the entrepreneur to command the services of the various factors of production differs, and the price which he must pay for these services varies, according to the security which he is able to offer that the terms of his contract will be observed. The rich entrepreneur has an advantage over the poor entrepreneur, in that he can effectively assurr.e or risk obligations which the other is not in a position to assume. His costs of production are affected by this, and accordingly his prospects of profit are affected, quite apart from the degree of industry, skill and enterprise which he applies to the carrying through of the contract. Even under these conditions, then, his 'profit' cannot be reduced purely to 'wages of management'. The situation becomes far more complicated when we turn to consider either of the two forms of risk-taking productive enterprise which are most common in the modern business world. In the first of these the entrepreneur, while he may be operating in part with borrowed, or hired, resources, is also in part applying resources of his own to the enterprise upon which he has embarked. In the second, the capital owner, instead of lending his resources to an entrepreneur in return for a contractual payment, invests them in the share capital of a joint stock concern, and so becomes himself a joint undertaker, though he assumes no part in the actual conduct of the business in which his resources are embarked. (The reader will please note that I am using the terms 'entrepreneur' and 'undertaker' for convenience in different senses. By 'entrepreneur' I mean an actual organiser of business enterprise, whether he operates wholly or partly with his own capital or not, whereas by an 'undertaker' I mean someone who invests his money directly as a shareholder, and not by way of loan, in a business enterprise, whether he assumes any share in its organisation or management or not.) In either of these cases, the whole or a part of the resources embarked in the enterprise takes a form both legally and economically different from that which we have been considering hitherto. Physically, the form of the enterprise may be precisely

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the same. The same goods may be made, or services rendered, with practically the same expenditure of energy, physical, material and mental. But, economically, the form of the enterprise is altered. For it no longer owes certain fixed contractual returns as payments for the use of all the factors of production embarked in it. In as far as it is operated with capital belonging either to the entrepreneur or to a body of shareholding joint undertakers, this capital ceases to exercise any contractual claim upon the business (for a man cannot enter into a contract with himself) and becomes a claim which is essentially residual in character. The business has to meet out of its assets (or out of the whole assets of the undertakers where it has not assumed a joint stock form, with limited liability) all the contractual claims upon it. What is left after this has been done belongs to the entrepreneur or to the joint undertakers, and constitutes, from the accounting standpoint, his or their 'profit'. A part of the question before us is whether this balance-sheet use of the term 'profit' is to be recognised as economically valid. It is, of course, obvious that, if we do use the term in this sense, businesses carried on with equal resources and equal efficiency and under precisely the same physical conditions, but with differing economic compositions of the capital (and, I may add, also of the human effort) applied to them, will yield different amounts of profit. For the contractual return to the hired resources will figure not as a profit but as a cost, whereas the noncontractual return to the entrepreneurs' or undertakers' resources will figure as a profit and not as a cost. This is sometimes used as an argument against employing the term 'profit' in this sense, on the ground that businesses carried on with equal efficiency under identical physical conditions ought to yield equal profits. But why should they? Such an answer begs the question. They must indeed generate equal amounts of value and of 'surplus value', if we choose to employ that term; but unless their economic, as well as their physical, composition is the same, they need not distribute these amounts of value, or surplus value, in the same way. The desire to represent all equal amounts of capital (and all equal amounts of labour) as having a tendency to generate an

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equal economic return, and the desire to link this tendency up with a general law of distribution in accordance with the principle of marginal productivity, lie at the root of the attempt to give to the term 'profit', and also, as we shall see, to the terms 'interest' and 'wages', a sense which will impute to it a constant relation to the amount of capital or effort for which it is the economic return. But the inevitable result of this method of argument, pushed to its logical conclusion by certain American writers, is, if not the total disappearance of the profit category from the economic world, at any rate its survival only as a result of friction which hampers the perfectly smooth working of economic laws. The profit which survives is the result of artificial monopoly, which hampers the working of the law of marginal productivity, or of the uncertainty (or unpredictable risk) which is involved in the changing character of the economic world, or of sheer luck. In a world perfectly competitive and endowed with perfect foreknowledge of the future-not necessarily a static world, but a world of foreseeable change-all profit, in this sense, would disappear. To the implications of the terms 'monopoly' and 'competition', as they have been used above, it will be necessary to return. Here, however, our concern is with the process by which profit, a thing so clearly seen and sought by the common man, is made by the economist to perform this remarkable vanishing trick. This process is based essentially on a refinement of the classification of incomes begun by Adam Smith, and carried further by Malthus and McCulloch in England, by Walker in America, and by many other writers. Adam Smith, as we have seen, drew a distinction between profit, in the sense attached to the term by the man in the street, and profit in the economic sense. The latter was to exclude wages of management, the remuneration of the time and trouble of the entrepreneur; and economic profit was thus regarded as 'profit of stock', the remuneration attaching specifically to the capital rather than to the service performed. Capital, or stock, became on this view the residual claimant to the product of industry, and the returns to the different stocks were equalised by the process of competition.

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In drawing this distinction, Adam Smith clearly gave both 'wages' and 'profit' new senses differing widely from their ordinary meanings. A wage became the reward attached to any form of service, no matter how it was rendered, and a profit that of any form of stock, no matter how it was applied to production. Adam Smith's immediate successors did not follow his lead, but preferred to treat profit in a sense more nearly corresponding to current usage, as the total return to the entrepreneur, whether it came to him as the reward for applying capital or personal effort. This involved, we may note, also a corresponding redefinition of 'wages', so as to exclude the remuneration of the entrepreneur's own labour. But, while restoring the term 'profit' to a more ordinary sense, Malthus and McCulloch set on foot a new process of definition, by attempting to divide profit internally into certain component parts. Since then, as we have seen, one economist after another has followed up these two lines of argument. On the one hand, there has been the body of opinion which has attempted, by the exclusion of successive elements from the popular idea of profit, to reduce the concept to a residue so small as to be comparatively unimportant; and, on the other, there has been the attempt, while leaving the term inclusive, to distinguish one from another the separate elements which it is held to contain. By far the most important aspect of both these attempts lies in their treatment of profit in relation to interest. One school treats profit as merely a residue after interest has been deducted on all the capital employed, no matter what the manner of its employment may be, while the other finds in profit an interest element which is capable of being separately distinguished. A expends £I ,ooo of his own capital in a productive process under his own control, and receives with its aid £I ,Ioo by selling the product-a profit of IO per cent on the capital employed. B expends £I ,ooo of capital borrowed at 5 per cent, and sells his product for £I ,I oo a year later, thus realising a net £so for himself after paying interest. Is £so of A's profit to be regarded as interest, which he would have had to pay if he had borrowed the £I ,ooo instead of owning it? If so, his profit is s per cent and not IO per cent. But B's profit cannot

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possibly be regarded as 5 per cent, for he did not sink £I ,ooo in getting it. A's and B's returns cannot be compared in terms of percentages. If, indeed, the whole creative power were attributed to the capital itself, we could say that the two sums of £I ,ooo used by A and B had each returned a yield of £IOo, consisting in the one case of I o per cent profit and in the other of 5 per cent interest and 5 per cent profit on the sum so used. But this would imply that the yield was wholly due to the money, and not at all to the use made of it by A and B. The instance here taken is not, however, normal in type. For when A and B set out to use the capital in their hands, whether it be their own or borrowed, they can as a rule only use it either by relending it at interest to someone else, to whom the problem of using it will thus present itself in the same form, or by changing it from £I,ooo into something quite different. A uses his to buy machines, to hire a factory, and to pay for labour and material which he requires for the production of certain goods. B uses his in order to buy a piece of land or some shares in a company, in the hope either of receiving a rent or dividends, or of being able to sell these again for more than he paid for them. As soon as either A or B uses his £I ,ooo in any of these ways, what he is using ceases to be £I,ooo, and becomes the things he has bought with the money. These things cost him £1,ooo, and may have been worth just this amount when he bought them. But there is no reason to suppose that they will continue to be worth just £I ,ooo even for a minute after he has bought them. They may be worth more or less, according as he has bought wisely or foolishly, luckily or unluckily, and according to the use he makes of them after he has bought them. The £I ,ooo expended on their purchase no longer exists---at any rate as his. As a mass of free purchasing power, possessing a definite monetary magnitude, it has either simply ceased to be, by conversion into the things he has used it to produce, or it has passed into someone else's hands, if he has used it, not for fresh production, but to buy something already in being. This is, of course, commonplace enough. But note the consequence. If A's £I ,ooo, although it has been thus transformed into something else, is to be said to yield him an interest, or 17

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if the profit he makes by the use of what he has bought with it is to be said to contain an interest element, how is this interest or this element to be calculated? There is no reason for calculating it as interest on £I ,ooo; for the £I ,ooo is no longer in his possession. A will no doubt for some time go on remembering that the sum which he originally expended was £I,ooo, and will tend to think of his return as so much per cent on £I ,ooo. But how long will he go on doing this? Will his £I ,ooo retain for ever a purely fictitious existence as £I,ooo, merely for the purpose of having his interest, or the interest element in his profit, calculated upon it, irrespective of what happens to the value of money or to the value of the things into which the £I ,ooo has been transformed? If someone's great-grandfather invested £I ,ooo in buying spinning machinery in I79o, is this £I,ooo still at work, as £I,ooo, tending to return interest at a standard rate, and must this interest be deducted before we can find out how much profit the great-grandson is really making today, or be at least distinguished as a separate element in the great-grandson's profit? Any such contention is the merest nonsense; and yet it is implicit in the attempt either to treat all capital as returning an interest which must be deducted before the amount of profit can be ascertained, or to distinguish a separate interest element in profit. For we cannot distinguish the interest or the interest element unless we know on what we are to calculate it; and, if we discard the magnitude of the original investment, what are we to put in its place? There is, indeed, one heroic way out of this difficulty which some people have attempted to adopt. The amount of capital on which the interest, or interest element, ought to be calculated can be found, they say, by valuing the current assets of the concern in which the capital has been sunk. If it is worth £Ioo,ooo (say at its current Stock Exchange value), then there is £Ioo,ooo of interest-bearing capital in it, and interest on this sum must be deducted before arriving at the profit. If this is done, no profits will usually remain. For the current capital value is nothing other than the capitalisation of the expected future profits of the concern. The argument is thus clearly circular. It consists simply in re-expressing the amount of profit

X.

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as a rate per cent of the current capital value, and then calling it interest. A very similar problem to that which we are now discussing arises in connection with the classical theory of economic rent. Capital sunk in the land is supposed to yield an interest, which must be distinguished from the economic rent. But it has no such tendency. Capital sunk in the land is amalgamated with the land, and the future rent is paid for the improved land as a whole, according to its anticipated revenue-yielding qualities, and not in part for the land as it was (but is no longer) and in part for the improvement effected by means of the capital. The economic rent and the interest cannot be distinguished. There is one rent only, and this is based on the differential incomeyielding capacity of the land as it is, improvements and all. The position in respect of capital is precisely the same. Marshall, of course, recognised this when he described the economic returns derived from the productive use of durable goods as being of the nature of 'quasi-rents'. A's capital, once sunk in his business and converted into commodities, loses its character as money capital and its power to yield any sort of interest, and becomes a value proportionate to the incomegenerating capacity of the business as it stands. Its value, some would say, is measured thereafter by the discounted marginal productivity of the goods which it has become. And this applies not only to durable goods, or fixed capital, but also to circulating capital, as long as it remains in the form of commodities and not of money. The circulating capital is merely nearer to the money form: the difference between its status and that of the fixed capital is one of degree, and not of kind. The point of my argument is that the return which the entrepreneur or undertaker, in the sense given to these words in this paper, derives from his capital is one and indivisible, and can be neither separated nor analysed into distinct component parts. Nor, it follows, can the return which the entrepreneur derives from his own capital embarked in his business be distinguished from the return which he gets from his toil and trouble in managing that business. He gets, for his composite service of personal labour and capital outlay, a single return;

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CHAP.

and this return is properly to be described, in economic science as well as in ordinary language, as profit. The attempt to exclude from this profit a separate element of 'wages of management', or to isolate such an element within it, breaks down no less completely than the attempt to separate or isolate an element of interest. And the same difficulties would be fatal to any attempt to pick out and delimit a separate return or element arising as 'payment for risk'. The profit category, I am contending, is one and indivisible, and properly coincides with the use of the term in ordinary speech. A's profit-remember that in our example A is using entirely his own capital-is the difference between his takings and his outgoings-that, and neither more nor less than that. What, then, of B's profit? B, in our example, was operating wholly with borrowed capital on which he contracted to pay interest at a fixed rate. He made a surplus of £100 over his costs, apart from the interest on the borrowed money, and had £so left after paying this interest. His profit is £so, in precisely the same sense as A's profit was £Ioo, though they have been using precisely the same amounts of capital and using them with the same efficiency to produce the same quantities of goods, which they have then sold at the same prices. Their profits differ because their costs differ. B's profit is solely the result of his own toil, trouble and enterprise and of the risks attaching to the application of his personal service to this particular form of production; whereas A's profit is the result of an application of his own capital as well. It is tempting to say that £so of A's return ought to be regarded, not as profit, but as interest on his capital; but it is quite untrue. For, if A and B now resume operations for another year, and again produce identical commodities under identical conditions of production (apart from the composition of their respective capitals), but this time both have to sell their products for £1,o8o, what are we to say? B has still to pay £so in interest, leaving him only £3o profit. A has £8o. Are we now to regard £so of A's return as interest and only £30 as profit, assuming that the entire loss due to worse trading conditions is at the expense of his personal toil, trouble and enterprise, and none at the expense of the value of the

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durable instruments of production, etc., into which he has converted his capital? There is plainly no warrant for such a view; and if A now seeks to sell his durable goods and get his money back, he will soon discover that their market value has been affected by the decline in the current expectation of profit from their use. It is, of course, true that, if the decline in A's and B's profits is not peculiar to their trade, but part of a general decline in business profits over a wide field, this lessened expectation of profit will be likely to react on the rate of interest at which new money can be borrowed for business enterprise. Thus, if B is operating with money borrowed only for a short term, he may be able to replace his old borrowings at 5 per cent with new borrowings, at 4 per cent,and so raise his profit from £30 to £40, while A's profit remains at £8o as before. The rates of interest charged for business loans and the current expectations of profit from the embarking of resources in production are closely linked up together. For, in ordinary business transactions, money is only borrowed because the borrower hopes to be able to use the loan, either by itself or in conjunction with resources of his own, and perhaps with his own toil and trouble, in such a way as to realise a profit for himself after paying the interest. The existence of profit is not the sole reason for the existence of interest; for there are other forms of borrowing besides ordinary business loans. But, in ordinary industrial operations, the expectation of profit is the source of the demand for loans. The levels of profit and interest are thus intimately connected; but it does not at all follow either that all profit contains an interest element, or that all capital, however applied, earns interest, or can have an appropriate interest imputed to it. This view of the nature of profit, and of the relation of profit to interest, squares both with the practice of business accounting and with the view of the ordinary man. It is undoubtedly the best usage of the term 'profit' for the economist to adopt. The only ground on which objection can be taken to it is based on the assumption that equal capitals applied to production with equal efficiency ought to tend to yield equal profits. But why should they, unless they are applied in the same way? It is not

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the use of capital, but its use in a particular and distinctive way, that gives rise to profit. What, then, is this distinctive way? If I have money which I design to use as capital, I have a choice of methods open to me. I can apply my money by lending it out to someone else in return for a promise, or contract, to pay interest at a fixed rate. Or I can apply it myself, or in association with others and their capitals, directly to production for an uncertain and noncontractual return. The first of these uses of capital does not bring in a profit to its owner; the second does~r, of course, a loss, if the enterprise fails. This distinction is perfectly clear and precise; and there is no valid reason for the economist to wish to go behind it. If, however, the economist does want a term to describe the return on all forms of capital, whether it be lent or invested, and whether it consist of a sum of money or a supply of durable goods, he will need to find some term other than profit for this purpose. Marx, treating land as a form of capital, comes near to such a term in his use of the word 'surplus value', which is not profit, but the common fund out of which rent, interest and profit are drawn. But Marx complicates his use of the term 'surplus value' by entangling himself in the fruitless distinction between productive and unproductive labour, which causes him to say in the end that clerks' and warehousemen's wages, as well as rent, interest and profits, have to be paid out of surplus value. Moreover, Marx's surplus value must obviously include not only the whole return on capital in all its forms, but also the return to the entrepreneurs for their own expenditure of toil, trouble and business enterprise; for they are certainly not remunerated for these, in Marx's terminology, by means of wages. Surplus value does cover the whole return on capital in all its forms, including land; but it includes other elements as well. Nor can this be avoided. For, as we have seen, there is no possible means of distinguishing or separating the parts of the entrepreneur's return which come to him as payment for his toil and trouble from the earnings of the capital which he has embarked in his business. For this reason the conception of a

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return upon all capital, however used, is not a fruitful conception for the purposes of economic analysis. It does not represent a real, or practically isolable or measurable category. But this does not mean that the conception of 'surplus value' is unimportant. Its importance, however, lies in the distinction which it draws, not between payments for capital and payments for labour, but between contractual wage incomes on the one hand and all other incomes, 'earned' or 'unearned', on the other. It is a vital concept for the study of the underlying conditions of the wage contract; but it throws no light on the nature or delimitation of profit, or interest, or rent as distinct categories of distribution. Profit, then, in a monetary economy, can be simply defined as the surplus which arises from selling a product for more than the total cost of producing it-any interest on borrowed resources used in the production being reckoned as part of the cost. If this view is accepted, it follows that all profit, and not merely one particular element in profit, partakes equally, if at all, of the nature of what Alfred Marshall called a 'quasi-rent'; for it is all a return derived from the differential income-producing capacity of a body of resources applied to production. It is not possible, as Marshall seemed sometimes to suppose it was, to pick out that element in profit which can be attributed to the productivity of a 'durable good', such as a factory or a machine, and isolate this, as a quasi-rent, from the profit due to the productivity of the enterprise of the factory's owner. But it is correct to regard the entire net return accruing from the owner's use of his durable goods as a differential return of the same nature as the return derived by an occupying owner from the joint application of his land and labour. Quasi-rent is, however, an exceedingly bad name for such a return. For rent, like interest or wages, is essentially a contractual payment, whereas profit is not. All Marshall means is that different 'durable goods', such as factories, have, equally with different parcels of land, differential capacities for producing income, and are therefore equally capable of giving rise to rent. This is, of course, perfectly true; and a factory will yield a rent if its owner lets it to someone else instead of using it

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himself. But, if he does use it himself, it no more yields him a 'quasi-rent' than a parcel of land yields rent to an occupying owner. For the part of the return arising from the use of the land or factory cannot be quantitatively marked off from the part which arises from the other factors which contribute to the total net product. It is therefore misleading to regard profit, or any part of profit, as a quasi-rent. The truth is that rent and profits, and to a great extent wages also, are returns which accrue to the owners of things, including personal qualities, which possess a differential capacity to generate income. The importance of Marshall's 'quasi-rent' lies only in the recognition that the possession of this differential capacity is by no means peculiar to land. Interest is alone among the classical participants in the distribution of income in not being a differential payment in this sense, because, within a single monetary system, one unit of money is as good as another. This brings me to my final point. If rent, profit and wages are alike differential payments, and interest mainly depends upon the expectation of profit, it seems plausible to conclude that, in the present economic system, each factor of production is rewarded in accordance with its productivity; for in what else than this does the capacity to yield income consist? It is relevant to point out that this way of arguing is really tautological; for if productivity =capacity to yield income, clearly each factor in production will get an income that accords with its productivity. The statement means absolutely nothing. As we have seen, however, certain economists have attempted to define profit as the result of economic monopoly, which would tend to disappear under perfectly free conditions of competition. In doing this, they have narrowed the meaning of the term profit so as to confine it to an exceptional type of gain, and have eliminated from it in turn the element of interest on capital, the element of payment for risk-taking, the element of payment for business enterprise and the time and trouble of the entrepreneur, and every element which could in theory be refined away by analogy with some other kind of payment. I have insisted in this essay that these exclusions are illegitimate,

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and that the profit category must be retained as an inclusive whole. But is this wide definition of the term in any way inconsistent with the recognition that it is based on monopoly, in a wider sense of the word monopoly than most economists have been willing to admit? This wider monopoly is, indeed, related, not to profit specifically, but rather to what Marx called 'surplus value', to the sum of values accruing to the recipients of rent, interest and profits. And it is true enough that there are monopolistic elements in the return to certain classes of wageand salary-earners as well, wherever these depend either on naturally scarce personal qualities or on acquired skill depending on expensive education or training. There is obviously a monopoly element in many professional incomes under conditions which throw the differential costs of education on the parents, and so make the higher forms of education, despite the growth of scholarships and allowances for maintenance, still largely a class prerogative. But the entire return which Marx called 'surplus value' depends on monopoly in a somewhat different sense. For the power to bring together the necessary factors of production is itself a monopolistic power, from which the great mass of the population in all advanced industrial countries is excluded. This is not to say that the peasant, who does possess this power in some degree, is better off than the industrial worker. Manifestly, he is not; and neither Marx nor any other economist has ever suggested that he is. Nor is the independent worker, who works on his own materials, necessarily better off than the wage-earner, or as well off. For not all monopolies are equally advantageous; and the benefits of monopoly in the modern world accrue chiefly to the owners of large-scale business.

XI THE ABOLITION OF THE WAGE SYSTEM THE demand for the abolition of the wage system has been long familiar in Labour and Socialist propaganda. What does the demand mean? Some Socialists, notably the Fabians, have dismissed it as futile, on the ground that, in their view, wages constitute a form of payment with which no social system can possible dispense. It will always be necessary, they tell us, to pay a man so much an hour, or a day, or a week, or a month, as the remuneration of his labour; and they enquire what advantage there can possibly be in discarding the term wages, which is sanctioned by use and wont, merely in order to replace it by some other term with the same meaning. If this were all the advocates of the abolition of the wage system meant, the Fabians would be incontestably right. But this is very far from the truth. What is demanded is not simply a change of name, but a change of status-the establishment of a new set of relations and a new estimation of human rights. A wage, as the word is understood in Socialist and Trade Union circles, is not merely a daily or weekly payment for work done, but a payment made on certain definite terms. In the eyes of those who seek the abolition of the wage system, these terms are degrading and inconsistent with the recognition of elementary human rights. What, then, is a wage? It is, in effect, a reward for work done, calculated either in accordance with the time spent by the wageearner in the employer's service (time-work payment), or in accordance with the amount produced under the employer's orders (payment by results). But observe the accompanying conditions. In the first place the wage, being a reward for work done, is only paid, with certain very rare exceptions, when the workman is able to find an employer ready to employ him. 258

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When the workman is unemployed he receives no wage, though he may under modem conditions receive a smaller payment under some public scheme of unemployment insurance or relief. And, even when he is technically in employment, he can be temporarily suspended or deprived of work for part of the week, or even in some trades for part of the day, or be placed on systematic short time, because his employer is unable or unwilling to use his services for the whole week, or to pay him a full week's wage for a full week's work. Certain favoured groups of workers have indeed succeeded in getting what is called a 'guaranteed week'; in other words, they are assured of a full week's wages for any week in which they are actually in employment at all. But this is exceptional; and there are numerous classes of workers who have not been able to secure even a 'guaranteed day'. Moreover, even these more favoured workers can be discharged either without notice, or at a day's, a week's, or a fortnight's notice. Among manual workers, as long a period of notice as a month is indeed a rarity. Once discharged, they have no further claim to a wage, until they are able to find a new employer to engage them. What are the conditions which enable them to find an employer or to get regular work and wages when they are in employment? Except in the public services and in the case of workers engaged for the direct utility of their labour to the employer, such as domestic servants, the indispensable condition is that the employer should consider it economically worth while to employ them; and this normally means that he must have an expectation of making a profit by means of their labour. It is true that, with an eye to the future, an employer may sometimes keep men at work, even when he looks for no immediate profit as a result; but, in the last resort, he must always be guided by the prospect of profit. For otherwise he will be driven to close his works when his resources are at an end. He cannot afford to go on employing workers at a loss. It is the expectation of profit on the employer's part that, under the existing system, determines and conditions the employment of labour, and, consequently, the payment of wages to the workers. This is, of course, no more than a simple statement of the

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positive conditions of present-day industry. But I have to insist on what follows from these conditions. Under this system, the worker lives in a state of constant insecurity. The fact that the world and his fellow-workers have need of the products of his hands is no guarantee at all that he will find work; for the only demand that the system recognises is economic and not human demand. The loss of work by the workman has the effect of diminishing at once both the total volume of purchasing power and the amount of goods offered for sale. It is sheer loss both for him and for society. But a situation in which the amount of purchasing power distributed as wages depends on production, while the amount of production, in its turn, depends on the purchasing power available, is treated as a law of nature; and the continuous insecurity in which almost the whole of the working class lives is regarded equally as an indispensable condition of business enterprise. This continuous insecurity is in fact a characteristic feature of the wage system. It is unavoidable, as long as production is allowed to depend solely on the individual employer's or business's hope of profit. Some optimists have proposed to get rid of the insecurity of the wage system without disturbing any of its other characteristics. Each industry, it is suggested, ought to maintain its own unemployed, or, in other words, to give to all the workers in its service the guarantee of the uninterrupted receipt of a standard wage. As an alternative, it has sometimes been proposed that the State should guarantee every worker, instead of an insurance payment well below the normal wage, full maintenance at his regular standard, raising the necessary funds either by a special levy on all industries or by general taxation. I do not say that such steps are impossible; but it is surely clear that either involves a complete recasting of the industrial system, and its reconstruction on a basis which would no longer make the earning of a profit the determining cause of production and employment. For full maintenance by each industry of the whole body of workers attached to it would, in bad times, mean heavy loss, which would have to be met from some source other than the current takings of the industry; while the State, if it undertook to maintain all the workers at

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full wages, would obviously have to find means of setting them to work, even if the product of their labour was worth less than the full cost of production, including their maintenance. It is not easy to abolish one characteristic of the wage system without oversetting the system itself. In any case, the insecurity in which the wage-earner lives is not the only, or even the principal, defect of the wage system. In return for a wage, the workman sells his labour-power to the employer. Aided by the strength of his Trade Union or appealing to industrial legislation, he may succeed in making this sale subject to certain conditions. But no Trade Union has yet succeeded in establishing control over the purposes to which the labour-power of its members is applied. In fact, any attempt an unon its part to do this would certainly be denounced warrantable interference, and a dangerous onslaught on the rights of management and control vested in the heads of the business. The workman may be called upon to make thingsarmaments, for example-which would be, in his opinion, much better not made at all; but he will be told that it is none of his business to beat swords into ploughshares. Or, again, he may be compelled to manufacture luxury goods, even when he knows that there is, in his branch of production, a scarcity of vital necessaries. The mason is not asked whether he prefers to build palaces for millionaires or cottages for workmen. All that is determined, not by considerations of human need, but by the employer's expectation of profit. The workman is employed only on condition that he makes what the employer bids him make, without regard to the social utility or uselessness of the work imposed upon him, and without concern for the greater or less urgency of different human wants. But, it will be asked, why should the building operative or the engineer demand, or why should they be granted, the right of choosing what work they will do? This surely is a matter for the consumer. So it is. But I am none the less disposed to insist on the fact that, under the present system, the consumer is no more consulted than the mason or the engineer. The consumer is you and I ; he is everybody; but we have no other means of influencing the course of production than by influenc-

as

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ing the employer's expectation of profit; and even this is strictly limited by our capacity to pay. It would doubtless be reasonable to demand that the workman should recognise and subject himself to the demands of production, if these were determined by the community as a whole, on a basis of its needs. But there is no reason why he should willingly submit to the control of productive effort if this is based on the employer's expectation of profit, this expectation being based, in turn, on a wrong distribution of purchasing power. It is, however, a fact that the workman does not submit voluntarily, and does not give of his best under the present system. Over a great part of the industrial field, the wageearners in general see no reason for giving more by way of labour than their personal interests absolutely require. They will produce enough to avoid the danger of being sacked: they can, in some cases, be stimulated by the offer of material inducements in the shape of payments by results; but on the whole the pace of production is indubitably slowed down by the worker's full awareness that his labour, instead of being applied to the satisfaction of social wants, is used only as a source of private profit. On this account he sees no reason fordoing more than a minimum amount of work; and this cannot be attributed to him as a fault, for it arises inevitably out of the conditions of production. If these conditions are taken for granted, it can even be said that the question of reasonableness is not regarded as arising in his case; for production pursues ends which bear no relations to social needs which he would be ready to recognise. In the third place, not only does production lack all social incentive, but also the worker has no responsibility, and no sense of responsibility, for production. His Trade Union may be able, by means of a collective agreement, to impose on the employer restrictions as to the manner in which he may use the worker's labour-power. It may be able to regulate rates of wages, hours of labour, overtime, and even to some extent factory discipline and the organisation of work. It remains none the less true that the authority of the Trade Union is limited by its economic power, and all that it can do is to impose restrictions designed to safeguard its members' interests. The

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employer or his representative gives the orders; the employer assumes and keeps the responsibility for production, and jealously excludes the workers from all share in the control of the business, except under conditions which imply submission to his point of view, as in some Works Committees and similar bodies exerting an illusory share in the functions of management. Under these conditions, it would be ridiculous to expect the workers to feel any sense of responsibility for production. For responsibility is the correlative of power, and implies the right to make decisions. If it is asked how far this right is conceded to the workers in the year 1932, it is only necessary to refer in reply to the recent discussions in the engineering industry, in the course of which the employers have shown a lively opposition to any interference whatever by the workers in workshop questions as essential to their welfare as the 'manning of machines', on the ground that this would be an encroachment on 'managerial functions' and a departure from the proper functions of Trade Unionism. In short, the wage system involves for the workman an utterly inferior status. The wage-earner's situation is one of entire insecurity, in which he is unable to look confidently even a month ahead, unless he is in a specially privileged position. It is not easy for a man to retain his manhood intact under these conditions. Threatened by such a danger, it is hard for him either to stand up for his rights, or to profess just and courageous ideas. His situation is degraded and degrading; he is the social inferior of all those whose security for the morrow is greater than his own. Nothing so holds back the working-class movement, or thwarts and represses the personality of the working class, as the incessant dread of unemployment. Besides, the wage system denies the worker all sense of either social direction in, or personal responsibility for, his work. In order to drive him to produce, it appeals, not to his professional honour or his desire to serve the community in accordance with his powers, but to his fears, his needs, and his economic cupidity. It drives him to labour harder because his wife and children must have bread, by offering him a few shillings extra as a piece-work

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bonus, and then takes these shillings away from him, by cutting the piece-work rate, when, reacting to this inducement, he has consented to increase his output. I maintain that a system which rests on these motives is unjust and inhuman. And I maintain no less firmly that it is inefficient. It not merely ignores, it is flatly in opposition to, the most powerful force that can be enlisted on the side of human progress-the sense of free and well-directed service. For a man to give of his best, three conditions need to be fulfilled; and all these three the wage system flatly denies. In the first place, men ought to be able to count on security, not absolute, but reasonably adequate, for themselves and their families, and ought to possess the assurance that their incomes depend, not only on some individual's zest for profit, but on the community's power to provide its members with the means of living, and of living well. In the second place, men ought to have the assured sense that their labour is serving a useful purpose, not merely from the standpoint of an individual or corporate profit-maker, but from that of society and its members. In the third place, they ought to have the consciousness that they are responsible for the manner, good or bad, in which they render the service which is in their trust, and that they are charged by the community each with his own task as his particular contribution to the common task, which cannot be effectively performed unless everyone does his part with a will. The abolition of the wage system implies, then, three thingsfirst, the establishment for all workers of as much security as society is capable of affording, or, in other words, a guaranteed right to income in return for a continuous will to work; secondly, the determination of the course of production by the community as a whole, in due relation to human needs, and not with the quest for the greatest possible private profit; and thirdly, collective and individual responsibility, implying for the workers the individual and collective power to regulate their service under autonomous conditions, subject only to their fulfilment of the demands of society for production. These three things make up the legitimate aspiration of the working class; and this aspiration will become a positive demand to the extent

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to which the working class can gain confidence in itself, despite the depressing conditions of its present status. The day when this demand has been satisfied will witness a great increase in the responsiveness and efficiency of labour; and it will also bring with it a great improvement in sheer human quality, as new possibilities of self-expression open before them in art and science and in life itself. Society can neither be in health nor get the best from its members as long as it refuses to most of them any effective security or responsibility. But security and responsibility cannot be gained without a radical change of the social system; and it depends largely on the attitude of the possessing classes whether this change comes peacefully or by a cataclysm which involves a wasteful destruction of existing values as a means to the creation of the new.

18

PART III SOCIALISATION

XII PUBLIC AND SEMI-PUBLIC CONCERNS IN the Liberal Yellow Book, published under the title of Britain's Industrial Future, there is an interesting chapter bearing the name of 'The Public Concern'. The authors begin this chapter with a round assertion that, in the light of the modern developments of business enterprise and pub1ic control, the old controversies between Socialists and anti-Socialists over the question of 'nationalisation' are to a great extent obsolete. They go on to describe in detail the extent and growth of public or semi-public concerns engaged in the actual administration of industries and services, and, without proposing definitely that the scope of this sort of management should be for the present widened, evidently see in it a means of bridging the gulf between capitalist and Socialist ideas about the control of industry. The list which they present is indeed formidable; and, when it appeared, doubtless many people were surprised to see how far State control and operation of industries and services had in fact already advanced. The Yellow Book went on to suggest changes in the methods of administering many of these socialised, or half-socialised, enterprises, in order to make them more efficient and flexible in their working. The authors evidently desired to make publicly administered services adopt methods more nearly like those of privately owned industry, to place them under forms of business management immune from political intervention, .and in this way to reconcile the apparently conflicting standpoints of Collectivism and Individualism. I shall be attempting in this paper to restate the case from a somewhat different point of view. The argument most commonly adduced against State participation in the actual conduct of industry is that State action in this sphere is most often inefficient and inelastic, and that the 269

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machinery of State-embodied in the typical Civil Service departments-is unsuitable to the practical control of industrial operations. Judgments that State trading enterprise is habitually inefficient seem to be for the most part a priori, and to be highly uncertain and ambiguous in the standards of comparison which they adopt. Is it with the best or the worst, or the norm or the average, of private business that State enterprises are being compared? No one seems to know, or at any rate to make the basis of the comparison clear. It is at least not proven that State enterprises such as the Post Office, even where they are run on Civil Service lines, are inefficient in comparison with the great bulk of private industry. Nevertheless, most p1.!ople nowadays, including the majority of Socialists, do appear to hold that the direct conduct of industries through Civil Service departments is not the best method of industrial organisation, even where the case for State intervention to control an industry or service has been sufficiently made out. Socialists have for a long time been veering towards the idea that publicly administered forms of enterprise ought to be conducted through some sort of ad hoc trading body, with accounts clearly separated from the national Budget, and with methods of administration conferring a wider discretion than can easily be reconciled either with the Civil Service tradition or with the present forms of parliamentary control through a responsible Minister. Consequently, there is an insistence, among Socialists, on the working out of alternative forms of public control and administration; and many who are not in any sense Socialists recognise the inevitability of public ownership and control over a wide field, and are seeking, from an opposite point of view, to devise methods of administration that seem to them consistent with their hostility to Socialism as they understand it. Let us begin with an example illustrating each of these attitudes. Mr. Herbert Morrison, as Minister of Transport, recently published the outline of a scheme for the complete co-ordination of the traffic control of Greater London. Under this scheme, which Mr. Morrison confidently proclaimed as based on the most up-to-date kind of Socialism, the privately

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owned London traffic combine was to be amalgamated with the publicly owned tramway systems of the L.C.C. and other bodies into a unified service under public control. This service was to be administered, however, not by the L.C.C. or any other Local Authority, but by a special ad hoc authority-a commission of business experts and representatives of the interests concerned, operating under powers conferred by a special Act of Parliament, and subject to State control in such matters as charges and payments to those who had capital invested in any of the amalgamated businesses. There was to be set up a public authority, armed with large powers and authorised to conduct the entire passenger transport services of Greater London as a publicly controlled monopoly, under powers to be conferred directly by Act of Parliament. But this concern was to be in form a business body, and not an elected authority directly responsible either to the general body of the metropolitan electorate, or to any special body of electors constituted for the purpose. Or take, on the other side, recent Conservative criticisms of the Post Office. Lord Walmer and other critics, including Liberals as well as Conservatives, want to take the management of the Post Office out of the hands of Civil Servants, and entrust it-or at least the telephone service-to some sort of Statutory Corporation run on business lines, on the model of what Signor Mussolini has already done in Italy. Some Socialists at once waxed very indignant over Lord Walmer's proposal; but on the face of the matter it appeared to resemble closely what another Socialist, Mr. Morrison, was proposing to do in the case of London traffic. Nor need we remain wholly in the realm of projects. The most important industry in Great Britain that is undergoing a thorough process of 'rationalisation' is the industry of electricity supply. The Act reconstituting the industry was passed by a Conservative Government. Yet, in effect, it nationalised completely one great, and key, section of the electrical industry, the bulk transmission and wholesaling of electrical power, in addition to establishing an extensive system of control over both the production, or generation, and the retail distribution. This

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Conservative Act has at least half-nationalised the electricity industry; but it has done this, not by placing its conduct in the hands of a Civil Service department or under the traditional forms of parliamentary control, but by establishing, in the Electricity Commissioners and the Central Electricity Board, new public authorities wielding a very large measure of the public power in relation to the services which they control. It is safe to say that if the Electricity Acts had been brought forward by any Socialist Government, they would have been heavily condemned by Conservatives as involving a destruction of private enterprise and a long step towards Socialism. But, as matters stand, we have the startling paradox that the most Socialistic piece of legislation passed since the war has been enacted, with very little opposition in any quarter, by a Conservative Government. This rise of what are coming to be called 'Semi-public Concerns' is one of the most important features of the post-war economic system. There is, of course, in one sense nothing novel about them ; for bodies operating under some sort of public authority, and with some degree of public participation and control, existed long before the war, both in other countries and in Great Britain. There were railways, as in Belgium, owned by the State and operated by private companies under licence; there was the well-known German instance of State participation, on behalf of State-owned mines, in the RhenishWestphalian Coal Syndicate; and there were, in Great Britain, mixed bodies controlling vital services, such as the Port of London Authority established a few years before the war. But we had not learnt, in pre-war days, to think of the Semi-public Concern as a distinct form of economic organisation, capable of being applied over a wide field as an alternative alike to private enterprise and to direct management by the State or by municipal bodies. Of late years, however, this alternative form of economic organisation has emerged more and more clearly, albeit in many different forms. We have, in this country, the outstanding examples of the Joint Electricity Authorities and the Central Electricity Board in one field, and of the British Broadcasting

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Corporation in another. Russia, where a vast experiment in State Socialism is in progress, has organised her industries under the control of a whole series of 'trusts', each endowed with a wide autonomy under the Soviet Republic and its central economic organs. Germany has experimented in 'mixed' enterprises, based on a coalition of public and private capitals and public and private representatives on boards of directors; and the British State has followed up its earlier holding of Suez Canal shares by investing in the British Dyestuffs Corporation and the Anglo-Persian Oil Company. Even such a concern as the Imperial Cables and Communications Company illustrates the difficulty, in these days, of drawing a clear line between public and private enterprise; and such bodies as the Public Utility Societies, which take a growingly important part in the work of State-aided housing abroad, and to a less extent in this country, while they may be in form purely private ventures, are so linked up with the State by borrowings and grants as to be, in effect, semi-public in the real nature of their operations and policy. Of course, we can see now, as we look back, that the system of private enterprise has never been wholly private. In mercantilist days, the great regulated and joint stock companies, from the Merchant Adventurers to the East India Company, were in large measure agents of the State, as well as bodies of private traders pursuing their own interests. And before the East India Company, supreme exponent of latter-day Mercantilism, had been finally shorn of its trading privileges and functions, the rise of new forms of joint stock enterprise was compelling the State to adopt new methods of regulation and control. Turnpike Trusts were, in effect, regulated joint stock companies; and canal companies, railway companies, gas companies and other public utility concerns followed, with necessary variations, the model laid down for the Turnpike Trusts. Needing compulsory powers, which they could get only by Act of Parliament, they had to accept in return, even in the heyday of laisser faire, at least some small measure of public control. This was, in the mid-nineteenth century, as small as the State, dominated by the ideas of the Manchester School,

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could make it; but it was never wholly absent. It is impossible for even the most rigid individualist to endow private bodies with public powers without exacting at least some control in return. Control tended, moreover, to become more extensive as the century advanced. We can watch the State, intervening at first as little as possible in the affairs of the railways, and endeavouring to regard them as purely private concerns, driven nevertheless to exert a growing control over their operations, by regulating charges for goods and passengers alike, and at length, in 1921, extending a reluctant and partial control even over the payment of wages. We can see the State, compelled to extend special powers to gas companies and electricity supply companies, exacting in return either a regulation of charges or a statutory restriction of the dividends to be distributed. We can watch the evolution of statutory Port Authorities, with varying degrees of private and municipal control, up to the new model of the Port of London Authority shortly before the war. My point here is simply this-private enterprise has never been wholly private in any of those fields in which business can be carried on only by bodies armed with special powers to invade private rights. A railway must have compulsory powers to acquire land, and a gas company to tear up the streets. The ordinary powers of the Companies Acts are inadequate for their purposes, because they convey no authority to invade private rights. Such powers can be conferred only by statute. Accordingly we have had, ever since the joint stock structure became the normal form of large-scale business organisation, two kinds of companies--ordinary companies under the Companies Acts, and parliamentary companies, deriving their special powers from private Acts of Parliament, and subject, as a quid pro quo, to at least some measure of public control. I might, of course, instance here that supreme mystery, the Bank of England, with its peculiarly Athanasian relations with the Government and the Treasury-a private concern whose affairs are so interwoven with affairs of State that its Governor seems sometimes as if he governed Great Britain, and no man

PUBLIC CONCERNS

275 can really tell how far the Treasury controls the Bank, or the Bank the Treasury. But perhaps it is best for my present purpose to leave such high and confusing mysteries alone, and to tread in this paper on less hallowed ground, after a whispering, with all due reverence, of the holy name. In general, then, a company, or body, acquires something of a public character as soon as it requires and acquires special public powers of interference with private rights, and accepts in return for these powers some measure of public control over its working. But the great mass of public service concerns which are in this position still remain essentially and mainly private affairs. Their capital is privately owned, and they work, under regulations imposed by the State, for private profit. The State in some measure controls them; but it does so from the outside, and without positive participation in their conduct. The words 'Semi-public Concern' imply something more than this. But how much more? Some form and degree, shall we say, of positive public participation in their conduct? Thus, the Port of London Authority and the Joint Electricity Authorities, where they exist consist in part of direct nominees of public bodies, such as municipalities. The B.B.C. and the Central Electricity Board are governed by persons directly nominated by the Government. The position of these two differs, in that the B.B.C. has no privately owned capital invested in it, whereas the Central Electricity Board operates with privately owned loan capital which may be publicly guaranteed. If the Minister of Transport realises his project of a public traffic combine for Greater London, we shall have another concern similar in structure to the Electricity Board-a body using privately owned capital, but operating under the control of directors nominated by the State through the appropriate Minister of the Crown. It is necessary, at this point, to draw a distinction between three types of concern, any of which may be called 'semi-public' in a certain sense. The B.B.C. may serve as an instance of the first type. In it there is no question of making a profit, or, at present, even of earning interest on borrowed capital. It operates with an income drawn from licences collected under public XII.

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authority, and is governed by persons who are appointed directly and exclusively by the State. How the B.B.C. succeeds, under these conditions, in financing its schemes of capital development, except to the extent to which it can meet capital expenditure out of income, I do not pretend to know. My point is that in form the B.B.C. is a purely public body, in which private enterprise makes no appearance at all, but that it is managed, not directly by the State, but by an independent body of governors whom the State appoints, and then leaves free to administer the business in their own way, or at least subject only to the most general and informal control by the Government in matters of high policy. It is, indeed, possible to question the Postmaster-General, who answers for the B.B.C. in Parliament, or the Prime Minister, about its affairs; but the Member of Parliament who attempts this commonly gets very little satisfaction. Nine times out of ten, he is simply told that the matter he wants to raise lies entirely within the discretion of the B.B.C. itself, and has nothing to do with the Government. This is not quite true; for doubtless the Government can interfere if it wishes. But normally it does not wish to interfere: it greatly prefers to shift the responsibility to the governors whom it has appointed. In finance, it is true, Government control is more real and effective. For the B.B.C. gets only the revenue which the Government allows it to have. The proportions of the licence fees collected by the State which are to go to the B.B.C. and to the Exchequer are determined by the Government; and this limits the B.B.C.'s power either to provide expensive services or to embark on heavy capital commitments. But even in matters of finance there is no detailed control of expenditure-no Treasury control such as exists over other public services. The B.B.C. has to keep within its permitted revenues; but within those limits it is practically free to spend its resources how it likes. We have, then, in the B.B.C. a service which is completely under public ownership and financed entirely by funds collected under State authority, but hardly at all under Government or parliamentary control in respect of the services it provides, or its success or ill-success in satisfying public demand.

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The B.B.C. is, indeed, a highly irresponsible body; for it is largely free from the checks of private, as well as from the controls of public, enterprise. The second type of concern which it seems desirable for us to study is best illustrated in the example of the Central Electricity Board. In this case the governing body consists, like that of the B.B.C., wholly of public nominees, appointed for a term of years, and left free within the powers granted by Parliament to administer the service in their own way. There is here even less State control over executive policy than in the case of the B.B.C.; and the State, if it wishes to influence the policy of the Board-say, by speeding up works with the object of providing employment-has to negotiate with it almost as it would with a privately owned industrial enterprise. But, whereas the B.B.C. has no capital, and draws its revenue from licences, the Central Electricity Board finances its operations, which involve large capital expenditure, by way of loans; and the money is provided by, and remains in the ownership of, private investors. These investors, however, get only a fixed rate of interest, and have no control over the actions of the Board. They are merely functionless bondholders, whose service is confined to the lending of capital. There are no shareholders; and the question of participation in control by those who supply the capital therefore does not arise. It is possible for the enterprise to take this form, without the State incurring a dangerous liability for guaranteed interest, because the nature of the undertaking is such that it seems likely to be able to earn a steady dividend without serious risk merely by adjusting its charges. Of course, bad management, or major changes in the structure of industry in general, might cause it to fail in this. But the danger is not regarded as serious. Defects of management are not likely to do more than cause the public to pay more than it need for electricity, and therefore use less. The point is not likely to be reached, at any rate in the near future, at which not even by raising charges can the service meet its interest obligations. But obviously this is so because the service of electricity supply is in a special position. In most industries and services there is a real risk of conditions arising in which interest on all the capital

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cHAP.

employed cannot be provided out of the revenue of the undertaking. The third type of semi-public undertaking is found where control is actually shared between public and private representatives, so that the State, or some lesser public authority, has gone definitely into partnership with a body of private shareholders. This is the position in the German 'mixed' concerns, and, in this country, in the Port of London Authority and in the Joint Electricity Authorities which exist in certain areas. There may be some provision whereby dividends are limited or fixed in a body of this sort; but, unlike the other two, it may set out to work for a variable profit, and not merely to earn a fixed interest on borrowed money. It would be possible to instance a fourth type-the leasing of a publicly owned enterprise to a private company to administer, as in the case of the Belgian railways, or the German railways under the Young Plan. But there is, as far as I am aware, no example of this type at present in Great Britain, though some critics of the Post Office have urged of late that the telephone service, at any rate, should be handed over to a statutory company to administer on these lines. What do these developments signify? A recognition, I think, on the one hand that the conduct of many vital services can be no longer left to the unregulated control of private enterprise, and on the other that the existing mechanism of the modern State is unsuited to the conduct, or even to the detailed regulation, of industrial and public service undertakings. There is on the one hand a desire, and even a necessity, to bring certain vital services under co-ordinated public control, and on the other an unwillingness to do this under what may be called, for short, Civil Service conditions. There is, further, in certain fields a desire to co-ordinate private enterprise without altogether superseding it; and the most obvious way of doing this may be the creation of co-ordinating bodies in which the representatives both of the public and of the private undertakers who are left in the field take part. There is, moreover, another factor. The assumption of the nineteenth-century economists was that, if capital was left free

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to flow where it chose, it would, in its pursuit of maximum profit, flow naturally into the channels of maximum public utility. Today, hardly anyone would maintain this view without serious qualification. It has been found indispensable, in certain instances, to guide the flow of capital and credit by special inducements offered by public bodies-guarantees of interest or principal under the Trade Facilities Act, inducements offered by municipal bodies in respect of rates to industrial enterprises to settle in a particular locality, even direct State provision of capital and State investment in private undertakings, such as the British Dyestuffs Corporation and the Anglo-Persian Oil Company. There have been, moreover, projects, not fathered exclusively by Socialists, for the better direction of the process of investment through a National Investment Board, and for a revival of the method of State guarantees in the provision of capital for the reorganisation of the depressed trades, such as cotton and steel. The Bankers' Industrial Development Company represents an attempt in this field to escape from the necessity of direct State action by making the banks in some measure agents of the State; and the Bank of England has a somewhat similar auxiliary of its own. All these and all similar proposals raise the question whether public money can be voted, public credit pledged, or the investing classes be given public inducements to interest themselves in a particular type of enterprise, without the necessity for some public participation in the control of the businesses in question. If the State is to provide capital or guarantees, or subsidies or inducements, must it not be in a position to control the way in which the money is spent, and the policy of the businesses which are to spend it? At the least, must it not be able to assure itself that its help is being used to the best public advantage? It might be urged that the State could get the necessary minimum of control merely by the exercise of its powers as creditor or guarantor, and without any direct participation in the conduct of the business. But it may fairly be doubted whether this method is likely to be effective. The co-ordination of electricity supply could not have been brought about save by a

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State body strong enough to stand up to the interests of power companies, private supply companies, and municipalities, and to organise the national grid system with the aid of wide compulsory powers. Nor will the problem of a co-ordinated gas service, recommended in the Reports of the National Fuel and Power Committee, ever be effectively handled except along somewhat similar lines. It is true that, in the case of coal, an experiment has been made in the regulation of output and prices by statutory bodies representing the industry itself, without direct participation by the State; but the success of this experiment is very doubtful, and the policy of entrusting compulsory powers to non-responsible bodies is, to say the least, open to serious objection. Similar ideas underlie the Agricultural Marketing Act recently passed by Parliament; but, personally, I doubt the success of either experiment. Even less is to be hoped for from attempts by the State to persuade industries to reorganise themselves without the use of compulsory powers. Little progress has been made towards national reorganisation in the case of either iron and steel or cotton, despite an infinite outpouring of words and persuasions. It seems to be clear that reorganisation in these cases will call for two things-the exercise of wide compulsory powers, and the creation of a public, or semi-public, body authorised to exercise them. Of the existing semi-public concerns in Great Britain, the most important and instructive is the Central Electricity Board; and it is worth while to look somewhat more closely at the plan which it embodies. The service of electricity supply, like most industries, embraces three main functions-production, wholesale distribution, and retail distribution to the consumer. Retailing is done by municipal and private local stations throughout the country. Most of these stations have in the past also generated their own electricity, so that the wholesaler has been absent as a separate concern. But there have been also, in some parts of the country, power companies selling power both to big industrial consumers direct, and also to retail distributing stations-publicly and privately owned. The new scheme is based upon the rationalisation of production under varying

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forms of ownership, and on the socialisation, under the direct control of the Central Electricity Board, of the entire business of wholesale supply. Of the existing producers of electricity, a great many are put out of action as producers, and generation is concentrated in a limited number of selected stations, built or to be built, in order to lower costs by concentration upon the most efficient units-public or private. All power so generated is then bought at wholesale prices by the Central Electricity Board, and sold by it to the retailers, public or private-that is, the private or municipal distributing stations, many of the old generating stations being retained as distributors after the loss of their productive function. The State, acting through the Electricity Commissioners, who are responsible for selecting stations and drawing up the schemes for main line transmission over the whole country, thus undertakes to organise the rationalisation of the service, and to eliminate the less efficient productive units; and the State again, acting through the Central Electricity Board as a business body, controls producers and distributors alike by the possession of a monopoly at the wholesale stage of bulk transmission of electrical current. Only the middle stage-wholesaling-is completely socialised; but this enables the other stages also to be controlled. It is not unlikely that this form of organisation will serve to some extent as a model for schemes of socialisation in other industries and services. For it may be that in some other industries as well the key point for the State to occupy is the direct conduct, not of productive operations, but rather of wholesale marketing. May not a vital part of the solution of the coal problem, for example, be found in creating a unified State coal marketing organisation, as well as a body of Commissioners empowered to close collieries and to bring about compulsory amalgamations? Admittedly, the coal problem is far harder than that of electricity. But may we not have been mistaken in endeavouring to tackle it at first too exclusively at the producing end, and latterly, when we have transferred our attention to other aspects, in attempting merely to regulate output and prices rather than co-ordinate methods of sale? Similarly, in the case of the cotton trade, may not the way to 19

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the recovery of such foreign markets as we can reasonably hope to get back lie through the creation of a unified marketing organisation to supersede the countless private merchants who are now trying to make a living by competition in a dwindling market? The creation of a unified producing organisation in Lancashire is, for the present, too ambitious a project; but unified merchanting, combined with compulsory powers of amalgamation, might well equip the State with a powerful instrument for reorganisation similar to that which has been achieved in the case of electricity supply. I am not suggesting that all industries and services can be tackled in the same way, but only that here is a fruitful field for further experiments. This proposal brings us face to face with a vital point of policy. When the State resorts to attempts to rationalise industry by public co-ordination and control of the processes of marketing, should it seek to work through the persons now engaged in the operations concerned by means of representative bodies of some sort? Or should the new unifying and controlling agencies consist, like the Central Electricity Board, of full-time public servants free from all responsibility to the firms engaged in the industry? I feel no doubt that, in most cases, the second method-which has been so far very successful in the case of electricity-is the right one. Representative bodies will be too much at the mercy of the conflicting claims of vested interests, and too conservative in outlook, to bring about the radical changes that are needed. Single-mindedness is essential to the successful conduct of any big economic enterprise ; and it is very difficult for a body which represents different vested interests to be single-minded. Doubtless, the State will be wise often to pick, for the key posts of socialised enterprise, men with wide experience of private business. But the personal transference of loyalty ought to be complete; and it will not be if those responsible for conducting a service on behalf of the State still continue their connection with private business. It has been the purpose of this paper to discuss the emergence, in recent years, of new forms of large-scale business enterprise that are as unlike the Collectivism to which many Socialists used to look forward as they are unlike the ordinary capitalist

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joint stock concern. On the one hand collectivists have been compelled to realise the sheer impossibility of any effective Parliamentary control over a large mass of nationally owned and publicly administered industries and services, and also the unsuitability of Civil Service methods, and above all of Treasury control, to the work of industrial management. It is understood, too, that Budgets will be plunged into hopeless confusion if trading and spending services are lumped together, and that a rule which confiscates all surpluses to the Exchequer may work out very unfortunately if it is applied to a developing service under public control. There is consequently among Socialists a ready recognition that new forms of administration for socialised services will have to be devised and made the subject of experiment; and to this extent the 'functionalist' case advanced by the Guild Socialists has been incorporated with the general body of Socialist doctrine. Socialists still insist that there can be no ultimate independence of the socialised business unit from control by the representatives of the community; for the various services have to be co-ordinated as instruments of a common policy, and this policy has to be directed in accordance with the public good. Final control of high policy by Government and Parliament must therefore be preserved; but it is widely agreed both that the appointed directors of socialised services must be given a very considerable autonomy and freedom from interference, and that parliamentary control is an ill-devised method for the oversight of any save the broadest and most far-reaching questions. On the other side, Anti-Socialists have been compelled by the mere logic of events to admit the need for a considerable enlargement of the province of State action, as well as for unification of services in which competitive methods are now clearly wasteful and inefficient. Their tendency, naturally enough, is to endeavour to bring about unification, where the need for it is plain, with the minimum of public intervention, and when public bodies such as the Central Electricity Board have to be set up, to leave them, after defining their powers, almost completely immune from political interference with their administrative methods and policies. They want public control

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xu.

to assume as far as possible the shape and behaviour of private business, and the semi-public or public concern to look as like the private joint stock company as it can. There is thus plenty of ground for difference left between Socialists and Anti-Socialists in working out the application of any particular scheme, even where it is agreed that unification under some measure of public control has to be carried into effect. But it is no longer easy to say, in such cases, precisely where, from the standpoint of economic structure, Socialism begins or Anti-Socialism ends. They run into each other at the edges; and the difficulty of drawing a sharp line is likely to grow greater with further changes in the technological basis of industry. Already in Germany the later developments of the cartel system, and of State control over it, have caused a significant blurring of the outlines of Socialist and capitalist economic policy. This does not mean in the least that the differences between Socialists and Anti-Socialists are disappearing, or even growing less. But it does mean that they are assuming new forms, and that the superficial issues are tending to change. The battle is no longer, even in the field of industrial policy, between unrestricted and unorganised private enterprise on the one hand and the nationalisation of a number of separate industries and services on the other. It has taken a far wider range; for Socialists are now standing not so much for nationalisation as for a planned economy based on the co-ordinated public ownership and control of the entire range of vital industries and services, whereas Anti-Socialists, admitting the need for unification and some measure of public control in particular cases, are concerned to prevent just that political intervention which is for the Socialist the necessary instrument of a planned economy working in the public interest. There is a certain field of economic structure within which the circles of Capitalism and Socialism show some tendency to overlap. But the centres of the two rival systems remain as far as ever apart.

XIII THE ESSENTIALS OF SOCIALISATION THERE was a time when the contrast between Socialism and private enterprise seemed plain and striking. Under private enterprise, the means of production were owned by individuals who, by reason of their recognised ownership, were able to levy toll of rent, interest and profits upon the community as a whole. Under Socialism, the means of production would be collectively owned and administered; and the toll of rent, interest and profits would cease, the entire product of labour being appropriated to the uses of the entire community. It was all beautifully simple: and in the propaganda of Socialism it was only necessary to point the contrast in order to make out a magnificent ethical case. Of course, nothing has happened to impair the fundamental justice of the familiar picture. It remains true that, under Socialism, the means of production (or at least all that matter from the general standpoint) will be collectively owned, and that the levy of tribute by a possessing class will have ceased. But, valid though the contrast is, it does not help Socialists greatlywhen theyare facing theday-to-dayproblems of a gradual transition from Capitalism to Socialism, or trying to insinuate wedges of Socialism into the prevailing capitalist system. Some Socialists say that the difficulty arises only because this is to attempt the impossible, and Capitalism and Socialism (on the instalment plan) cannot live together. Gradualist Socialism, they tell us, is an illusion; it must be all or nothing. For such Socialists, the constructive work of Socialism can begin only after a revolution which has thoroughly and once and for all dispossessed the capitalist class. They may be right, in the sense that Socialism will never be fully achieved by constitutional means alone. Indeed, I think they are. But it does not follow 285

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that Socialists are exempt, in the present, from the need to insinuate bits of Socialism into the economic system; for he who whistles today for the English Revolution is assuredly wasting his breath. For the time being, it is the business of Socialists to get as far on towards Socialism as they can by constitutional methods. As soon, however, as this limitation on immediate policy is accepted the difficulties begin to appear. They were not serious when Socialists were merely agitating, without hope of immediate success. But now that we are getting used to the idea of Socialistic, if not Socialist Governments, believers in Socialism have to work out a positive policy for these Governments to apply; and almost the first problem that confronts them is the preparation of plans for the socialisation of some at least of the vital industries and services of the country. The old idea of socialisation, on which most of the earlier propaganda of Collectivism in this country was based, had at ]east the merit of simplicity. An industry-say, railway transport-was to be acquired for the community by buying out the shareholders, who were to receive some form of compensation assessed on an equitable basis, and were thereupon to lose all connection with the industry. The State, owning the railways, was then to provide for their future management by putting a Minister of the Crown at their head, and conducting them, as the Post Office is now conducted, under Civil Service control. There were, it is true, disputes even in those days about compensation. Some people wished to buy the shareholders out for cash, raising the necessary funds by an addition to the National Debt. Some wished to give Government debt in exchange for the shares, without any cash passing. Others preferred a system of terminable annuities, charged upon the national revenue; while yet others repudiated the principle of compensation altogether. It is curious to remember that in those days the Fabian Society was still ranged, according to its basis, against compensation, and proposed to expropriate the shareholders subject only to 'compassionate allowances' designed to meet cases of hardship. There was, in those earlier days of Socialist propaganda, far

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more talk about the basis of compensation than about the forms and methods of future management and control. This latter question, indeed, was hardly discussed at all in Great Britain until the two or three years before the war, when the doctrines of Syndicalism, Industrial Unionism, and Guild Socialism were beginning to make headway. But then this problem came rapidly to the front. Syndicalists and Industrial Unionists, hostile to State action in all its forms, attacked alike State ownership and State control, urging that both ought to be vested in working-class bodies. The railwaymen and the miners were to manage their industries as trustees for the community. There was to be no State ownership, because under the new conditions there would be no such thing as ownership at all, in relation to the means of production. The Guild Socialists for their part wanted public ownership ; but they agreed with the Syndicalists in repudiating State control. They wanted the management of each industry to be entrusted to a self-governing National Guild, so organised as to represent the various grades of workers by hand and brain who were necessary to its conduct. A number of Trade Unions, including the miners, the railwaymen, and the Post Office workers, worked out for themselves schemes of socialisation which were clearly Guild Socialist in tendency. I have no space in this paper for any full discussion either of these schemes or of the numerous projects of socialisation and workers' control which have been brought forward in recent years. 1 I must come at once to the most recent of all these schemes-Mr. Herbert Morrison's Bill for the unification of London passenger transport. At once we find ourselves in a different world from that of pre-war nationalisation with direct State management, and hardly less far away from the Guild Socialistic plans of the 'reconstruction' period after the war. We are far nearer to the conception which underlay the Conservative Electricity Act of 1926, with some admixture of ideas from the Coalition Railways Act of 1921. Indeed, it is not easy to say, on the face of the matter, whether Mr. Morrison is 1 An outline of the more important schemes is, however, added as an Appendix.

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proposing to socialise London transport or to reconstruct it, as the railways were reconstructed in 1921, under private ownership and control. For Mr. Morrison's Bill does not propose that the State should buy out the existing shareholders of the combine. Instead, a new inclusive corporation is to be created; and the shareholders are to be given stock in this body in place of their present holdings. Power is taken to buy out the smaller privately owned companies either for cash or for stock; and the properties of the municipal bodies concerned are to be acquired for a consideration payable, not in cash down, but either in annual instalments or by an issue of stock. Moreover, the dividends payable by the undertaking are not to be fixed in the form of an annual interest charge, but are left at the discretion of the Board, subject to Treasury sanction, and are apparently to depend on profits, and to vary between 5 and 6 per cent according to the profits earned by the combined undertaking. The earning of 5 per cent profit is apparently to be a first charge, in the sense that fares, which will be subject to public control, will be fixed at a level designed to yield this rate; but the variable dividend is to give the shareholders a further return if the undertaking is so managed as to increase efficiency and bring down costs. These provisions recall certain sections of the Railways Act of 1921. An anomalous provision, not included in the Bill, but apparently forming part of the agreement between the Ministry and the combine, gives the stockholders power to appoint a receiver if their 5 per cent dividend is not paid. It is not clear what the powers of such a receiver would be, or how the provision is justified by the Ministry. The directorate of the new body, as the Bill now stands, is to be appointed by the Minister of Transport, without provision for the representation of any interest or group. This proposal has already raised protests from three distinct quarters. The London County Council is demanding direct representation of municipal interests; the Trade Unions are demanding representation of the workers; and certain shareholding interests are demanding continued representation of the shareholders.

XIII.

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Now, Mr. Morrison's Bill at once raises, in decisive form, the question which this paper sets out to discuss. Was the Labour Government proposing to socialise London transport, or to hand it over to monopolistic private enterprise? Both views have been advanced with some show of reason; and it is none too easy to decide between them. Let us, then, set out, as clearly as we can, the main questions that arise. If we can answer these questions, we shall be in a fair way both to defining the essentials of socialisation, and to deciding in what light to regard Mr. Morrison's Bill. 1. Is socialisation compatible with the continued existence of a body of share- or stock-holders, with claims to interest or dividend upon the undertaking?

In any scheme of socialisation, if compensation is paid at all, some claim must be created. But this claim may be either against the assets or earnings of the undertaking, or against the State. It may seem. to make very little difference which form the claim takes. It used to be urged that a claim valid against the State would be more secure than a claim against any particular undertaking, and that accordingly the State could acquire an industry more cheaply by issuing Government debt than by any other method. But there are now objections to direct State borrowing because of the great increase in the size of the National Debt and the necessity for frequent conversion operations, which have depressed State credit. The State is therefore reluctant to borrow in order to pay compensation in cash; and it is urged that this can be avoided if share- and bond-holders in any undertaking that is taken over are allowed to retain their shares or bonds, or issue new shares or bonds in exchange. The continuance of private shareholding seems, however, to imply the continuance of private ownership, and is objected to by Socialists on that ground. This objection applies less to redeemable bonds than to perpetual shares; for it is possible to urge that the bonds should be gradually paid off, until the entire undertaking is publicly owned. Moreover, the continuance of shareholding would be more likely to lead to a demand that the

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holders should share in control than a continuance of bonds. I conclude, then, provisionally that private shareholding is not compatible with socialisation. Does it make any difference whether such a claim, tf it exists, takes the form of a claim to a fixed rate of interest or to a variable dividend? 2.

Socialists used to argue in favour of fixed interest rates, in order that the public might get the advantage of the State's superior borrowing power and appropriate all profit above a low fixed rate of interest. But, of late years, the danger to industry of increasing fixed interest charges, which form part of the cost of production, has become more and more evident. This does not matter greatly where an industry or service is of such a sort as to be able to rely on earning a regular surplus irrespective of trade fluctuations, though even in such a case, if the general level of prices falls, the effect may be to make an unnecessary present to the rentiers (and vice versa if prices rise). But it matters far more in any industry which is liable to fluctuating trade conditions, or open to outside competition. Thus, it may not matter much in the case of a London traffic monopoly; but it would matter greatly in the case of railways, or coal, or steel. There is, accordingly, a prima facie case for making the return to the providers of the capital required, even for a socialised undertaking, vary with the fluctuations in its earning capacity. But this, it may be said, involves giving the providers of capital the status of shareholders rather than bondholders; for herein lies the essential difference between them. This is true, according to capitalist ideas; but there is no reason why we should accept these ideas. The State could give to the private providers of capital bonds secured, cumulatively or not, solely against the net earnings of the undertaking-i.e., a sort of income debenture without power of foreclosure, analogous in some respects to existing types of income debentures and in others to preference shares, but without even nominal rights of ownership. This is virtually the position of preference shareholders in many private undertakings today. I conclude, provisionally, that the form of compensation

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should be an exchange of existing shares for income bonds secured only against the net earnings of the socialised undertaking, and bearing a limited, but not a fixed, rate of dividend rather than a fixed rate of interest.

3. Does it make any difference whether the claim, fixed or not

in amount, is valid only against the net earnings of the undertaking, or is guaranteed in whole or in part by the State?

If the return on capital is to be made only out of the net earnings of the undertaking, it is to be presumed that the commission managing the industry will be instructed so to conduct it as to secure a reasonable dividend, and that any powers of price control exercised by the State will be employed with this idea in mind, as under the Railways Act of 1921, the various Electricity Acts applying to private undertakings, the Gas Acts, and so on. In other words, the socialised undertaking will be allowed and instructed to charge prices sufficient to pay what is regarded as a reasonable return on capital, provided that the trade will bear such prices. Such a method would preclude running the socialised service at a loss, or at less than the 'reasonable return', except with the aid of a direct State subsidy, as long as a profit could be made by raising prices. But it would exempt the State from guaranteeing dividends or interest on capital embarked in an undertaking which could not earn a reasonable return even by raising its prices. In other words, it would leave the owners of the capital to bear losses due to a real depreciation in the earning value of the undertaking. It would also avoid burdening either the State or the undertaking with heavy fixed charges. It will be objected that it would leave the providers of the capital to risk their money without having any control over its use. But this is already their position in large joint stock undertakings; and they would have, even from the capitalist point of view, no real grievance if the price-fixing authority were definitely instructed to permit prices sufficient to yield a reasonable return, as long as this could be done. My conclusion is that, ordinarily, claims should be valid only against the net earnings of the undertaking, but that this should

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not preclude the State, in order to encourage new investment, from guaranteeing a fixed or minimum return upon such investment for a limited period of years. This has, of course, been done in certain cases-e.g., for the London Tube Railways under the Trade Facilities Act. It is a matter for discussion whether the claims should be cumulative or not. I am inclined to think that they should not. 4· If share- or stock-holders continue to exist, is it consistent with socialisation to give them any share in the control of the undertaking, or any representation on the directorate? This question has already been answered inferentially under section 1. The answer is 'No'. 5. Is it consistent with socialisation that the directors should be appointed for a period of years, and be irremovable during that period, or ought the State, or other appointing body, to have a continuous right of recall?

It is assumed that, in any case, directors will be removable for misconduct. The question is whether they are, or are not, to be removable on grounds of policy. This raises several difficult questions. It is bound up, in the first place, with the question of political control. How far are the directing bodies of socialised undertakings to be autonomous, or under Government control? I hold strongly that they must be ultimately under the orders of the Government in matters of policy, however little it may be desirable for the Government to interfere with their day-to-day management of the undertaking. This is best secured by giving them a large measure of autonomy, but leaving them removable at any time at the Government's pleasure. This is proposed in the London Passenger Transport Bill, whereas the Central Electricity Board's members are irremovable during their period of office. But another question is also involved. If, and in as far as, members of the directing body are nominees of groups or interests other than the State, how far are they to be removable by these groups or interests? Representation is apt to become unreal if the representative becomes a full-time salaried servant

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of the State, and is not subject to recall by those whom he is supposed to represent, save at the end of a period of years. One remedy would be to make the period of appointment of such members short; but this might mean that they would carry less weight, and be less effective, than State nominees serving for longer periods. Power of a represented body to recall its representative at any moment would be liable to abuse. I am inclined to suggest that (a) State representatives should be appointed for three years, subject to recall at any time; (b) representatives of outside bodies should be appointed by the State on the nomination of such bodies for three years, subject to recall at any time by the State, but not by the nominating body. This rule might, of course, be varied in particular cases. I am only laying it down as a broad generalisation.

6. Ought consumers to be represented on the directing body? Or ought local authorities to be represented on any other ground than as representing the consumers? The case for consumers' representation is that the policy of socialised undertakings deeply affects their interests. It is, however, doubtful if direct representation of consumers on the managing body is the right way of protecting these interests. There is far more to be said for providing (as in the Labour schemes of 1919 and 1925 for the coal industry) something in the nature of a Consumers' Advisory Council, on which various interests can be represented, and for giving this body, subject to the final decision of the Government, a power to object to the policy of the managing body. The London Traffic Advisory Committee has powers of this order conferred upon it in the London Passenger Transport Bill. Clearly, consumers' interests ought to be represented in some form. We can best, however, return to this question at a later stage. In the case of localised undertakings, there is evidently a case for the representation in some form of the local authority or authorities concerned. In as far as the local authority claims to represent the consumers, what has just been said applies to its claim. But the situation may appear different where an undertaking previously conducted by a local authority is being taken

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over by a Statutory Board or Commission (as in the case of the L.C.C. trams). In such a case, the local authority is really in the same position as the body of shareholders in a private undertaking that is socialised; and I do not see why it should be represented on that ground. There may, however, be a special case for representation of the local authority on the Statutory Board where, as in the instance of a Local Port Commission or Authority, there is need for close collaboration in the conduct of related services by the two bodies. I conclude, then, that in general consumers should be represented, not on the Managing Board, but in some other way, and that the question of local authority representation must be settled, not on general principles, but in each particular case.

7. Ought the workers engaged in the undertaking to be represented, as a matter of principle, on the directing body, or given any statutory share in its control? If so, what form should their representation take? I do not propose to argue over again the case for workers' control, in the sense of participation by workers' representatives in the control of socialised industry. I propose to assume that such control ought to exist, and to di5>cuss what form it ought to take. If, as I think, the Board or Commission actually managing an industry must be kept small, in order to work efficiently, and must consist largely of persons chosen on account of their technical qualifications and managerial abilities, it follows that there can be no room for any considerable number of persons chosen simply as representing the workers engaged in the industry. There may be room for one or two, but not more. Moreover, the managing body must be full-time; and it is doubtful how far a man chosen originally as representing the workers can continue to represent them if he becomes a salaried servant of the State or the enterprise, and is not subject to recall at any time by those whom he is supposed to represent. I conclude, therefore, that real representation of the workers on the managing body is impracticable in any full sense. This should not prevent Labour men from being appointed to the managing body when they have the right qualities; but men so appointed

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2 95

should not be regarded as satisfying the working-class demand for representation, which must be provided for in some other way. I think the solution lies in the German system of the so-called 'double directorate'. The German joint stock company has two executive organs, a Vorstand, or Managing Board, a:1d an Aujsichtsrat (or Council of Control): the former consists usually of full-time managing directors, and the latter of part-time representatives of interests and groups concerned in the conduct of the undertaking. I should favour the adoption of this form of organisation for socialised enterprises in this country. There should be, first, a Board or Commission, consisting of full-time officers, and chosen on grounds of technical or managerial competence, and not as representatives of any interest; and, secondly, a part-time Council of Control, composed mainly of representatives of the groups concerned. On this Council, the workers should have a substantial representation, and there should also sit on it representatives of related industries and services with which close co-ordination is desirable, of local authorities where they are closely concerned, and of consumers, while at least one member should have the specific function of representing the Government as the holder of a watching brief. There should, of course, be no representation of shareholders. The Council, I think, should meet often enough to exert a real influence on policy, and the reports of the Managing Board should require its approval. Ther:e should, however, be a limited right for the Managing Board to appeal to the responsible Minister in case of differences between it and the Council over certain defined questions. There should be, further, in many industries, Regional Councils, related to the regional management; but it is doubtful if these ought, in most cases, to have more than advisory functions. The precise structure necessary can evidently be settled only in relation to each particular industry or service. A structure appropriate to railways might be largely unsuitable for building or coal-mining. Workers' and other representatives on the Council could be either appointed for quite short periods or be subject to recall at any time. They would receive not a full-time salary, but only

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fees for work done, and would thus be able to preserve their really representative position. Workers' representatives should, I think, be chosen by the Trade Unions chiefly concerned in the industry. This section is not intended to be a complete treatment of the question of workers' control. It does not touch at all on control locally, or in each particular works or workshop. It relates only to the form of the controlling agencies for the socialised industry as a whole, and should be read strictly in this light.

8. Should the State reserve to itself the right to appoint some or all of the directing body, and, if so, what principles should it follow in making its appointments? This question has largely been answered already. I think all appointments either to the Managing Board or to the Council of Control should be made by the State. But in the former case the State would appoint absolutely, subject only to such consultation with outside interests as it might deem desirable, whereas in the latter it would be appointing largely on the basis of nominations made by other bodies (as it does now in the case of workers' and employers' representatives on the I.L.O., and in many other instances). In the case of the Managing Board, the chief consideration should be to get the best possible technical and managerial ability combined with real belief in socialisation. It is obviously wrong to appoint a Board that disbelieves in its job, however good its technical and managerial qualifications may otherwise be. Stress should be laid on the need for appointing a reasonable proportion of men with firstclass technical knowledge, and for having some members with special ability and sympathy in the handling of personnel. In the case of the Council of Control, the State should accept the nominations of the bodies entitled to representation, while reserving the right to dismiss a representative and call for a fresh nomination. In certain cases, where there is no one body plainly entitled to nominate, and the bodies concerned cannot agree, the State may have to choose between the nominations sent in; and in certain other cases an unorganised interest may

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have to be represented by direct State appointment. But as far as possible, nominating bodies should be chosen, and left free to make nominations which the State would accept without question. I am disposed to prefer appointments for a specified period to appointments for life or for an indefinite tenure, subject to the provisions for recall outlined in an earlier section.

9· How, and in what forms, should new capital be raised for the

development of the industry or undertaking?

There appear to be three possibilities: (I) Direct provision by the State, or by some special body, such as a National Investment Board, acting as an organ ofthe State; (z) raising of capital by the industry or undertaking itself, backed by a State guarantee; (3) raising of capital by the industry or undertaking itself, without State guarantee. There appears to be no sufficient reason for ruling out any of these methods. Their relative advantages depend on the circumstances of each case. Thus, method (3) would probably be unworkable in the case of depressed industries, or wherever there was not enough confidence on the part of the investing public to get the capital taken up. Moreover, it would become increasingly difficult if, as seems probable, the supply of funds available for investment in the hands of the public were to fall off. It has already been suggested that, where method (2) is employed, the State guarantee of dividends should be given only for a limited number of years. On the whole, method (I) seems likely to become of increasing importance in the course of the transition to Socialism. I do not, however, propose to discuss here how a National Investment Board would work. That is a subject large enough for separate treatment. The above conclusions relate only to cases in which capital has to be raised from outside the industry. It is anticipated that normal capital developments will in the main be financed from reserves accumulated by socialised undertakings out of surplus income, just as many joint stock concerns are accustomed to finance normal developments out of reserves. It is therefore suggested that socialised undertakings should be free to build 20

298

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up reasonable reserve funds, and that their surpluses should not be automatically appropriated by the Exchequer. This, of course, would not preclude the taxation of such surpluses, either at the standard rate of income tax, 'or at any other rate that might be fixed, or the lending of surpluses in the hands of one socialised undertaking to another, with the consent of the State (e.g., through the National Investment Board). This method of financing development out of reserves seems to me an integral part of any real system of socialisation, in which presumably the final aim is the complete elimination of the private investor from the sphere of socialised industries and services. Should the undertaking aim at rendering service at cost price, or at making a profit (over and above any capital charges)? If the latter, how should the profit be disposed of? 10.

The chief reason why Socialists have usually been opposed to socialised services being run at a profit is (a) that this tends to depress wages and salaries in tl,le service, and (b) that, incomes being unequal and socialised services usually catering largely for poor people, the profit will be made largely at poor people's expense. Both these contentions are true; but neither would apply under a system based on economic equality. As we approach such a system, by far the easiest way of financing capital development will be for State services to be run at a profit, and for surplus funds to be used as capital in the ways described in the previous section. In other words, the community will distribute in wages and salaries only the amounts it means people to be free to spend, and not also the sums it wants them to invest; and funds for investment will be provided directly out of the product of industry before incomes are distributed to individuals. It is even worth while to make an approach to this system in the case of any industry which we may now decide to socialise. A reasonable wage should, of course, be fixed for the employees; and no surplus should be deemed to exist until the wage-charge has been fully met. But over and above this there is no reason why sums should go to the employees. The claim of the consumer to reduced charges is strong, in the case

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299

of consumers' services, while great inequalities of income continue to exist; but this is not a valid argument in the case of industries making producers' goods, providing services, or producing luxuries. On the whole, there is a strong case for extending the sphere within which socialised undertakings are to be allowed to charge enough to have a surplus. The question of the disposal of this surplus has been answered in the previous section. Any surplus should go (a) to building up reasonable reserves in order to finance developments, or (b) in loans to other socialised undertakings-subject in both cases to such taxation as the State may decide to exact. The point is that surpluses should normally be retained by the socialised industry, and should not pass automatically to the Exchequer. We have now attempted to answer all the questions raised at an earlier stage. How far have we succeeded, in the process, in defining the essentials of socialisation? We have suggested that it is nor compatible with the continuance of private shareholding, at least in any form which will give the shareholder any sort of control over the socialised undertaking. But we have urged that this does not preclude the existence of stock bearing not a fixed, but a variable dividend, as long as this dividend is subject to a maximum, and is secured only against the earnings of the undertaking. In relation to the form of control, it has been suggested that the difficulties can best be met by the creation of two distinct bodies-a full-time Managing Board or Commission on a nonrepresentative basis, composed mainly of technical and managerial experts; and a part-time Council of Control, consisting of representatives from interested groups and parties, and including a strong representation of the workers engaged in the service. Further, it has been urged that these directing bodies must be appointed by, and subject to recall by, the State, and must not be accorded powers which will make them independent of the Government in matters of policy. This last point, however, is so important as to deserve some further argument. Socialists presumably stand for a co-ordinated control of the

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economic life of the nation in the interests of all. This involves that the various industries and services must be subject, in matters of high policy as distinct from day-to-day management, to a common authority. This authority may be either the State itself, or a supreme economic organ created by the State (e.g., a representative National Economic Council or Economic Parliament). But it is simply inconsistent with socialisation to set up a directing body for a single industry or service, and to make that body independent both of other industries and services and of the central Government of the country. Unless and until a separate Economic Parliament or Council is created, each socialised service must be managed and directed by a body subject to Parliament and the Government, however wide its autonomy in day-to-day matters of management may be made. This, it has been suggested, can best be done by making all members of such bodies subject to recall at any time by the Minister responsible for them to Parliament. This, however, is no reason why the directing bodies should not be given very wide autonomous powers, provided that their members are subject to recall, and that disputes on matters of principle between the Managing Board and the Council of Control can be referred to the Minister for decision. Indeed, it is obviously expedient, subject to the power of removal, to leave the directing bodies the fullest freedom in the execution of policy, while reserving to the Government the power to initiate or approve the policy itself. It would not be difficult in most cases to draw the line between matters which the directing bodies might do on their own responsibility, and matters requiring the Minister's sanction. Broadly, the distinction is that between laying down a policy, and taking the expert measures needed to give effect to it. This paper has been written in the belief that we ought to be as precise as possible in trying to clear our minds about the essentials of socialisation, and in drawing a line between the types of scheme we are prepared to ·accept as measures of socialisation and those we are not. According to the principles here laid down, the creation of the Central Electricity Board was, I think, an act of socialisation, though by no means satis-

xm.

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factory in all respects. The creation of the Imperial Cables and Communications Company was definitely not an act of socialisation. On Mr. Morrison's London Passenger Transport Bill final judgment must be deferred until it has emerged from the ordeal of a Joint Committee of both Houses of Parliament, with a clear Conservative majority .1 A

NoTE ON PosT-WAR SociALISATION ScHEMES.

The scheme for nationalisation of the coal-mines which the Miners' Federation laid before the Sankey Coal Commission in 1919 provided for the future management of the industry (after State purchase at a fair price) by a full-time Mining Council. Half of the seats on this body were to be reserved for the Miners' Federation; the other half were to be filled by persons nominated by the State so as to represent the other groups and grades connected with the industry-technicians, managerial grades, and experts in related industries and services. This Council was to enjoy a wide autonomy in the conduct of the industry, so that the cry was at once raised that the miners were syndicalists who proposed to abrogate the sovereignty of Parliament, and to hand over the community of consumers to the mercy of a producers' monopoly. The railwaymen's scheme was less elaborate, and proposed a less radical form of workers' control. But the influence of the ideas which it and similar plans embodied can be plainly seen in the original proposals brought forward by Sir Eric Geddes for the regrouping of the railways in 1920. This scheme provided for the inclusion on the directorate of the new grouped railways of representatives both of the manual and of the managerial grades. In the event, this proposal was not adopted. The railway companies opposed it strongly; and the Trade Unions gave it away in favour of the provisions, embodied in the Railways Act of 1921, for special tribunals for wage regulation and for a system of Whitley Councils throughout the 1 Shortly after this was written the Labour Government fell, and Mr. Morrison's Bill was shelved. We have now to wait and see what a new Government, of' national ' composition, will do about it.

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railway service. The new railway directorates were constituted, like the old, of shareholders' representatives. But the Railways Act of 1921 was a scheme, not of socialisation, but merely of compulsory amalgamation under private ownership; and accordingly the working-class demand for representation was far less strongly pressed than it would have been if the railways had been taken over by the State. It is, however, interesting to note that, even at this stage, one Trade Union, the Railway Clerks' Association, was pressing for a scheme of railway nationalisation along rather different lines. The railway clerks wanted the State, having acquired the railways, to entrust their management to a small body of full-time Commissioners, to be appointed by the Government for a term of years. Among these Commissioners were to be representatives of Labour; but on appointment they were to become salaried Civil Servants, in no way subject to recall by those by whom they had been chosen as representatives. This proposal differed radically from the miners' scheme, which contemplated that the Mining Council would consist largely of persons chosen by, and responsible to, the Miners' Federation. But the railway clerks agreed with the Miners' Federation in wanting a scheme under which the governing Council or Commission, however composed, would possess a wide measure of autonomy, and not be subject to the detailed control of a Minister, or of Parliament, or to the customary forms of 'Treasury control' as it applies to such departments as the Post Office. In the period of depression after 1921, plans of socialisation, and the entire propaganda of workers' control, fell into the background, hardly to emerge again until the renewed struggle in the coal industry in 1925 and 1926. Then the Labour Party and the Miners' Federation appeared before the Samuel Coal Commission with a new and agreed plan of socialisation. This plan, covering other forms of power and the transport services in addition to coal-mining, proposed the creation of a Power and Transport Commission, appointed by the State on a non-representative basis, to take over the co-ordinating control of the entire group of services which it was proposed to socialise. The

XIII.

ESSENTIALS OF SOCIALISATION

Commission was to consist of full-time persons, and was to have wide autonomous powers. Under its general direction were to be the managing bodies for the separate industries and services, such as coal-mines, railways, electricity. The plans for these bodies were not worked out in detail; but as far as the mines were concerned, the representative Council proposed by the miners in 1919 was to be retained, with slight changes (sec Appendix), subject to the co-ordinating control of the nonrepresentative Commission. We have, then, at this point, in the minds of advocates of socialisation, a mingling of the two ideas. Moreover, the Labour schemes of 1919 and 1925 both made provision also for an advisory Coal Consumers' Council, on a representative basis, with powers to bring pressure on the body charged with the actual management of the industry. The consumers, however, were not, as such, to be represented upon the managing body. After this project the next stage was reached with the Conservative Electricity Act of 1926. This, it will be remembered, set up the Central Electricity Board, and made it responsible for the management of the new 'grid' system of main-line power transmission. The members of the Board were nominated by the State as salaried officers; but neither they nor their employees rank as Civil Servants, or even as employees of the State. The Board, moreover, raises its capital for itself, on fixed interest-bearing terms which may be backed by a State guarantee. It has thus its own body of stockholders; but these stockholders have no voice or vote in the conduct of the undertaking. The Central Electricity Board is definitely a creature of the State, and subject, in the final resort, to State control through the Minister of Transport. But it is not a form of State enterprise in the form in which these words used to be understood; and it has a body of private stockholders, and is intended to raise future capital by a direct appeal to the public.

APPENDIX. (Extracted from certain schemes and Acts bearing on the Socialisation of Industry.) I. NATIONALISATION OF MINES AND MINERALS BILL.

Fabian Society Tract, 1913. Provides for acquisition by the State and direct management by the Minister of Mines and a staff appointed by him and under his control. 2.

A

BILL TO NATIONALISE THE MINES AND MINERALS OF THE UNITED KINGDOM.

M.F.G.B. 1919 (presented to the Sankey Commission). Provides for acquisition by the State and for the appointment of a Mining Council of a President and twenty members, of whom ten are to be appointed by His Majesty and ten by the M.F.G.B. Appointment for five years. Members to devote whole time. A Minister of Mines and a Parliamentary Secretary to be appointed and to be responsible to Parliament for the affairs of the Mining Council. District Mining Councils to be appointed (half nominated by Mining Council and half by M.F.G.B.). A Fuel Consumers' Council to be appointed by the Crown as an advisory body.

3·

REPORT BY LoRD SANKEY, 1919.

Mines to be acquired by the State and a Minister of Mines appointed. The Minister to be advised by a National Mining Council and a Standing Committee appointed by it. The National Mining Council to consist of representatives from District Mining Councils, equally representing miners, consumers, and persons of commercial and technical knowledge. Councils not full time.

CHAP. XIII.

4·

APPENDIX

REPORT BY LABOUR REPRESENTATIVES ON SANKEY CoMMISSION, 1919.

Agrees with Sankey Report, subject to larger Labour representation on lines of 2 above.

5·

REPORT BY SIR ARTHUR DUCKHAM (SANKEY COMMISSION), 1919.

Proposes creation in each area of a District Coal Board, as a statutory company, amalgamating all existing collieries. Proposes Board of Directors of not less than seven for each Board ; two of these to be appointed by the workers, one by the agents, managers and under-managers, and the rest by the shareholders. One Government representative, a mining engineer, to attend, but not vote.

6.

EVIDENCE OF MINERS' FEDERATION TO SAMUEL COMMISSION . 1925·

A Power and Transport Commission to be appointed (replacing Electricity Commission), to consist of six full-time experts representing expert knowledge of coal, electricity, gas, transport, commercial questions, plus a Chairman. The President of the Board of Trade to answer for the Commission in Parliament. The Commission to regulate both private and public power and transport undertakings. A National Coal and Power Production Council to be appointed, consisting of an equal number of executive and administrative officials and of miners and by-product workers (say, twelve in all), elected by their respective organisations, plus, say, two representatives of the Power and Transport Commission, together with the chief officers of the Central Coal Administration and the Chief Inspector of Mines in an advisory capacity. The Secretary of Mines to preside over the Council, which should meet at least fortnightly and be responsible for the conduct of the industry. Provincial Councils to serve under the Council, consisting of a Chairman and Vice-Chairman appointed by the National Council, with six representatives of the workers and six of the technical and administrative staffs, with the chief area officers and the District Inspector of Mines

306 ECONOMIC TRACTS FOR THE TIMES CHAP. xm. in an advisory capacity. A Consumers' Council, representing employers and workers in coal-using industries, local authorities, Co-operative Societies, etc., to be appointed as an advisory body.

7· GEDDES' PROPOSALS FOR RAILWAY REORGANISATION,

1920.

Proposes six railway groups, with directorates composed of (a) representatives of the shareholders in a majority, and (b) representatives of employees, of whom one-third might be leading officials co-opted by the rest of the Board, and two-thirds members elected by and from the workers on the railway. 8. DRAFT BILL oF RAILWAY CLERKs' AssociATION AND AssoCIATED LOCOMOTIVE ENGINEERS AND FIREMEN, 1921. Proposes acquisition by the State, and management by seven Commissioners, under the Minister responsible to Parliament. Of the first Commissioners, the Chairman and two others to be appointed by the Minister, one by the Treasury and three by the Government on the nomination of the railway Trade Unions. Commissioners to be full time and perpetual, subject to removal by the Crown. 9· ELECTRICITY SUPPLY AcT, 1926. A Chairman and seven other members to be appointed by the Minister of Transport after consultation with such representatives or bodies representative of the following interests as the Minister thinks fit-i.e., land, government, electricity, commerce, industry, transport, agriculture and labour. Board not necessarily full time, but salaried, and to hold office for from five to ten years as the Minister may decide before appointment. LONDON PASSENGER TRANSPORT BILL, 1931. Board to consist of a Chairman and four other members appointed by the Minister of Transport after consultation with the Treasury. The members to be persons of wide experience and capacity in industry, commerce or finance, or in the conduct of public affairs. Members to hold office for not more than seven years, as the Minister may determine. 10.

XIV THE METHOD OF SOCIAL LEGISLATION WHEN Lord Hewart and other critics protest against the growth of the virtual law-making powers of the modern 'bureaucracy', it is easy enough for them to make out a clear case, to the extent of showing that these powers have, of late years, been increasing very fast indeed. Their troubles begin when they are asked to suggest a remedy for a situation which everyone agrees to be in some measure unsatisfactory and the product far less of deliberate intention than of sheer force of circumstances which no way has yet been found to control. The nature of these compelling circumstances is clear enough. In the modern world, legislation has become much more pervasive and much more complicated than it used to be. These characteristics arise directly out of the conditions of modern life, and especially of the modern economic system. A hundred years ago, Great Britain had indeed a complicated system of Customs and Excise, which Sydenham and others, following Huskisson, were labouring hard to simplify; but, apart from this, the body of legislation dealing with social and economic matters was very small, and the administrative equipment behind it slender indeed. There were Factory Acts on the statute book even then; but there was no factory code, and no inspectors had yet been appointed. The whole mass of legislation providing for enclosures was carried through without the supervision of any central department. The Poor Law, on the eve of reform, was still in the hands of a host of local bodies, operating without any central control; and while such measures as the Acts of Settlement involved endless administrative complications, these questions were left to be fought out in the courts without the central Government taking a hand. Only with the establishment of the new Poor Law Commission in

307

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I 834 did the now copious stream of orders and regulations begin to flow out from a central department of State, as it had flowed at an earlier period under Elizabeth and the earlier Stuarts from the Council or the Court of Star Chamber. Social and industrial legislation, which alone I shall attempt to discuss at all in this paper, are above all responsible for the growth of administrative activity. And, although the stream of orders and regulations began first to flow from a body -the Poor Law Board-which made no financial contribution to the cost of the services which it supervised, it will hardly be contested that the later swelling of the stream depended largely on the development of 'grants-in-aid'-in the broad sense of contributions paid by the Exchequer in aid of services whose detailed administration was entrusted to local bodies. The State, paying in part the piper, claimed a say in calling the tune. Indeed, it could hardly avoid doing this; for money applied by Parliament was voted for specified purposes and subject to conditions, and it was indispensable both to see that these conditions were observed, and to secure equality of treatment, according to prescribed principles, between area and area. Nor could this long remain simply a question of equal treatment of one area with another; for as soon as money was paid out by the State for the benefit of individuals, as under the Education Acts, or to-day under various forms of social insurance and provision, it became essential to ensure equal treatment between individual and individual. Thus, the more the system of grantsin-aid was extended, the more the stream of orders and regulations was swollen. Apart from this, the growth of legislative intervention in industry made uniformity of enforcement a more and more important matter. The earlier Acts relating to factories and mines were very laxly administered; but even if they had been fully put in force their prescriptions were relatively few and simple, and did not, as a rule, greatly affect the employer in his conduct of industry. But, as legislative intervention became more stringent and far-reaching, it came to matter more to secure uniformity of enforcement; for, if the law were enforced against Mr. A. and not against his competitor, Mr. B., was there

XIV.

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not manifest unfairness? Moreover, the more stringently a law is to be enforced, the greater becomes the need to adapt it to all the special circumstances of each case. A few general provisions relating to factories and workshops generally may do well enough for a beginning; but the modern factory code has to provide separately for each type of factory or workshop, and for all the various incidents that may arise in establishments of each type. It is, however, manifestly impossible to do all this directly by legislation. Modern Acts of Parliament are, indeed, often very long, and swollen out by elaborate schedules which lay down conditions for their working. But the longest Acts very often give rise to still longer orders and regulations, which proceed from the Government departments entrusted with their administration. Anyone who becomes a subscriber to the published series of statutory rules and orders learns a good deal in the first month about the complexity of modern methods of administration. And, even so, he receives only a fraction of the snowstorm of circulars that falls out of Whitehall upon the lesser administrators of the modern State system. Even if it were possible, it would be clearly undesirable further to enlarge the verbiage of Acts of Parliament by causing them to embody directly the rules and regulations which are at present 'made by the Minister' after an Act has become law. This would not only make almost impossible the getting of the required Acts through a House of Commons grossly overburdened already, but also give to the regulations themselves a most undesirable amount of inflexibility; for Parliament would be far too busy making them to spare time for their amendment if it made them wrong. There is, indeed, a great deal to be said for the view that we put too much detail into our Acts of Parliament now, and that Parliament would be wiser to content itself with prescribing by law only the general principles, and to leave the details to be filled in by some less cumbrous and time-absorbing method. We have no regular analogy in this country-save under a few very special Acts, such as the Emergency Powers Act-to the presidential decree of other countries. But often, when Parliament has fallen sadly behind

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its programme of work, and measures of vital importance are held up purely for lack of time, one is sorely tempted to wish that we had, in this country, some method of making law less difficult to set in motion and admitting of easier correction than the orthodox procedure of the Houses of Parliament. Take as instance of our present difficulties the parliamentary history of the unemployment insurance system. How much valuable parliamentary time has been absorbed of late years in tinkering with that troublesome measure, which no party proposes to rescind, but all eagerly wish to bend this way or that. I think we have tried to put far too much detail into the U nemployment Insurance Acts-far too much, or far too little. We have tried to determine strictly by Act of Parliament who has, and who has not, an individual claim to benefit; and we have tried to do this by means of a uniform measure which ignores all differences between one industry or class of workers and another. The result is inevitably unsatisfactory. It gives the Civil Service a rigid set of rules to administer, without so framing those rules as to meet the difficulties of each particular class of case. It is clearly out of the question, on grounds of both desirability and practicability, to amplify the Acts so as to include the variants called for by each separate industry. It would, therefore, in my judgment, be far better to put less into the Act, and to leave in the hands of some body other than Parliament a fairly wide discretion to frame regulations dealing with particular classes of insured workers, either by industries, when that seemed best, or by types of unemployment, such as short time, or seasonal or casual work. But as soon as this is suggested an obvious difficulty arises. In whose hands is this power, at present either wielded directly by Parliament or not wielded at all, to be placed? It is out of the question to entrust it to the Minister and his advisers of the Civil Service; for the common cry is that they have too much power already. Certainly neither Parliament itself, nor that section of public opinion which is most vocal, would tolerate any proposal to transfer more of the legislative power into the hands of the Civil Service. Nor, I presume, would Civil Servants themselves desire it; for it would expose them to additional

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3Il

unpopularity, and make them in effect arbiters of public policy in an obviously undesirable degree. The power might, indeed, be nominally that of the Minister, and the responsibility that of the Cabinet. But both Ministers and Cabinets have too much on hand already to be capable of taking on more; and, rightly, public opinion would regard any step of the kind proposed as a further stage towards government by the permanent officials. What, then, are we to suggest? Suggestions, in order to be useful, must be particular, and not general. For there is evidently no one body to which could be entrusted the task of filling out the details of all the various measures enacted by Parliament for the regulation of social and industrial conditions. At all events, let us stick for the moment to the particular case. I should like to see the Unemployment Insurance Acts themselves much less detailed and more flexible, and the power of making regulations under them entrusted, as it is in Germany, to some sort of Statutory Commission set up under the authority of Parliament. This Commission would doubtless be nominated by the Minister of Labour for a period of years ; and its orders and regulations might be made operative only with his sanction, as are the orders of a Trade Board today. But the actual legislative process, within the general framework constructed by Parliament, would then become a matter, neither for Parliament itself nor for a Civil Service department, but for a representative Commission analogous to a Trade Board, but exercising power, within its reference, over a much wider field. It could be further laid down, if it were thought desirable, that all regulations of importance should, in addition to receiving the approval of the appropriate Minister, be laid on the table of the House of Commons, and become operative only if no resolution hostile to them were carried by the House. This would mean in practice that on most occasions the drafts would go through sub silentio, but that it would be possible at any time to challenge a debate in Parliament if an important question of principle arose. The power to make regulations would, of course, be confined within the limits laid down in the Act of Parliament itself, and any regulations made in excess of these powers would be ultra vires and unenforceable-a matter upon

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which the ordinary Courts would preserve an undiminished power to pronounce. But, within the general prescriptions of the Act, regulation-making-which is, let us agree, a subordinate kind of legislation-would become the function of a special body, constituted for that purpose and for general supervision of the administration of the Act. This proposal has, I know, its difficulties. It makes the Minister the spokesman in the House of Commons of a policy over which he has a right of veto, but which he does not positively originate or control. It makes the actual Civil Servants who have to administer the Act take their orders partly from the Minister and partly from the Board or Commission, or rather wholly from a Minister acting in part as the mouthpiece of the Board. But neither of these difficulties seems to me to be, in practice, very serious. The first is not serious as long as the Minister possesses the right of veto, nor the second as long as the regulations of the Board reach the Civil Servant transmuted into orders approved by the Minister. Similar conditions have applied, and have worked quite well, in more than one field. Of course, a great deal depends on the amount of moral authority behind the Statutory Commission. If this were simply a board of ordinary Civil Servants, as much objection would be taken to its possession of regulation-making power as to the exercise of the same power directly by a department. The change would be hardly more than of name. It would be indispensable, therefore, to equip the Board with some degree of representative authority external to the department, in order that its recommendations and orders might carry sufficient weight. In the particular case of unemployment insurance, this would clearly involve a Commission broadly representative of the Trade Unions and employers' associations chiefly concerned with the working of the system. The representatives of these interests might be chosen in any of a number of ways; and to them might be added persons chosen by the Minister to represent the public interest-a leading accountant and an economist, maybe, among them. But these are details into which it is unnecessary to go

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at the present stage. The general nature of the proposal is plain enough not to admit of doubt. What would be its advantages? Five seem to me to be of outstanding importance. First, it would be possible to make the system far more flexible, to adapt it more exactly to different groups of cases, and to prevent abuses from growing up within it owing to the attempt to apply a common rule to many widely varying conditions. Secondly, it would be possible to rectify mistakes, and to adapt the system to changing needs and circumstances, without undesirable expenditure of valuable parliamentary time. Not nearly so many amending Acts would be needed as have been needed in recent years. Thirdly, the representatives of employers and employed, who have now no responsibility for the fair or efficient working of the system, would have a responsibility, and would be enlisted to help in making it work with the minimum of friction or abuse. Fourthly, it would be possible to consider desirable amendments less in an atmosphere of party controversy. And fifthly, the permanent officials would be relieved of an unpleasant and unpopular responsibility imposed upon them by the inadequacies of the existing statutes. As against these very great advantages I can see no really serious disadvantages of any kind. Doubtless, those who wish to make party capital out of the unemployment insurance scheme, on either side, would be baulked of many of their opportunities. But is that a disadvantage? Doubtless, Parliament would have handed over to a subordinate body what is virtually a part of the law-making power. But is that a disadvantage for a Parliament which has so many laws to make that it is in increasing danger of making none of them well? It is a familiar criticism of some heads of great enterprises that they do not know when to delegate authority, and attempt to keep far too much in their own hands. The same may be true of a Parliament, which, as its work increases, must find means of getting some of the subordinate functions off its hands, in order to concentrate its attention on those which cannot be delegated. I have taken this particular instance of the Unemployment Insurance Acts because it seems to offer an excellent chance 21

314

ECONOMIC TRACTS FOR THE TIMES

cHAP.

for an experiment that might be acceptable to many people who would reject out of hand any proposal of a more ambitious sort. Everyone admits that the unemployment insurance scheme has got into a mess, from which it ought to be rescued. I venture to $.1ggest that the trouble arises largely from both legislating for, and seeking to administer, the scheme in a wrong and inappropriate way-from attempting to frame an Act of Parliament covering all the cases with a series of inflexible general rules, and from placing outside all share in administering the Act the classes of persons on whose behaviour and attitude towards it its success or failure mainly depends. We may now return from the particular to more general considerations. Such a Statutory Commission as I have proposed for unemployment insurance differs toto crelo from such Advisory Committees as form part of the regular furniture of most Government departments. These Advisory Committees are generally well thought of neither by the Civil Servants who have to deal with them nor by the unfortunate persons who spend their time sitting upon them. There are exceptions; but they are generally failures, or at least not much more than windowdressing. The reason is, I think, fairly clear. These Advisory Committees have no positive work to do. Their function is purely critical, and not constructive. The Civil Servant, who has the job to do, does not usually welcome their interference with his doing of it. Their meetings are too intermittent, and their attention too perfunctory, for them to get any grasp of the work on its administrative side. They are, moreover, often consulted only when it suits the Minister and his advisers within the department to consult them, and shoved aside, or left in the dark, whenever it does not suit. Even so, there are good and useful Advisory Committees, especially those which deal with scientific matters and have a strictly limited reference which prevents them from dissipating their energies. But most Advisory Committees-even most Advisory Councils-with a wide or undefined reference are futile. At most, they provide for occasional meetings between leading Civil Servants and persons outside the service whom it is useful for them to meet. The Statutory Commission, even if its decisions need rati-

XIV.

SOCIAL LEGISLATION

fication by the Minister before they can become operative, stands on quite a different footing, because it has a definite job to do-a definite task of administration placed in its hands. It demands, of course, correspondingly more from its members; but it also gets more, because its members feel their giving to be more worth while. If we are serious in wishing to enlist the help of outside bodies in the work of government and administration, they are likely to get and give far more by being represented on Statutory Commissions than through any number of Advisory Committees or Councils with far wider and highersounding terms of reference. All this, however, deals with only one aspect of the problem, albeit considerably the most important. In any process of government under statute, it is necessary to consider first the drafting of the statute, secondly its passing into law, and thirdly its administration. If we are to get good laws that will work well it is of vital importance that full attention shall be given to the first of these stages. As Parliament will certainly be very short of time, and is in any case neither an expert body nor one whose atmosphere conduces to good draftsmanship, it is essential to get a draft statute into the best possible shape before ever it is introduced into Parliament. Now, drafting is at present mainly a departmental matter, subject to the endorsement by the Cabinet of the drafts prepared in the departments. At present, it is very common for a Bill to receive its first reading in the House before anyone knows what it is going to contain. It is then sprung upon Parliament and the public, as a measure to which the Government is already committed, before there has been any opportunity at all for public discussion of its merits. Of course, this does not always happen. Mr. Neville Chamberlain, for example, circulated a memorandum containing the main proposals of his Local Government Bill, and invited full discussion upon these proposals, long before the Bili itself was introduced, or the Government committed definitely to it. And often a Bill, even if its main proposals are not published beforehand, has been discussed in advance with certain of the interests directly concerned, and perhaps agreements reached which are

316

ECONOMIC TRACTS FOR THE TIMES

CHAP.

subsequently embodied in certain of its clauses. Again, the outlines of the Bill have sometimes been discussed in advance with one of those Advisory Councils or Committees of which I have spoken slightingly above. Of all these courses, that adopted in the case of the Local Government Bill is by far the best. As far as possible, all proposals for new social legislation ought to be plainly formulated, and published abroad for general information, well before it is intended to introduce the Bills embodying them. This ought to be done in such a way as to make it clear that the Government is in no way committed to the details, and is prepared to hear all criticisms and objections before proceeding to formulate its Bill in a definite and committal form. If only this were more often done, much waste of parliamentary time could be avoided; measures could be introduced into Parliament in better shape; and the public would be better informed about the pros and cons of Government policy. I do not suggest that this course can be followed in all cases, but only that wise statesmen will seek to follow it whenever they can. This, however, pushes the matter back a stage further. Before the proposals are formulated and published, as well as at the stage between this publication and the actual introduction of a Bill, there will be need for some amount of consultation with outside bodies. Sometimes the process begins with a Royal Commission or Departmental Committee, which formulates proposals that are then discussed both in the departments and in Government circles and, perhaps, with outside interests. I should like to see such commissions and committees more definitely instructed than is now the case to draw up positively the heads for any legislation they might think desirable, and empowered not only to take evidence from outside interests before formulating any proposals, but also to consult with such interests on any proposals which they might formulate, before presenting their report to the appropriate Minister. Again, I do not suggest that this method of close consultation with outside interests before a Bill is even drafted can be universally applied. There will be some questions on which a Cabinet is determined to bring forward its own legislation,

XIV.

SOCIAL LEGISLATION

whatever the interests concerned may say, and to present its proposals in a finished form before the interests are given a chance of saying anything at all. But there are many more measures which could be improved, without sacrifice of anything regarded by the Cabinet as vital, by consulting as fully as possible at the earliest moment, and so reducing to a minimum the subsequent struggles in the committee stage. Then again, when a Bill has got into draft, it is often the best course to allow a reasonably long interval before the committee stage begins, in order that the interests concerned may have every opportunity of raising points of substance, and having them met where they can be met, without the need for prolonged discussion in Parliament. The aim of any sensible Government will usually be to get its Bills through Parliament in the shortest time and with the least possible friction; and it will therefore be eager to conciliate critics whose points can be met without sacrifice of principle at the earliest possible stage. The less of detail a Bill contains, the less usually will there be for the interests to lay hold on in it for purposes of amendment in Committee. But, as matters stand today, this does not necessarily mean that the Bill will have a smoother passage; for criticism may fasten on sins of omission as well as sins of commission. The reluctance of certain religious interests to let the School Attendance Bill go forward until the question of the non-provided schools had been settled was an obvious instance of this ; for the fact that the Bill contained no reference to this question by no means disarmed the critics. It will often be necessary for a Minister, before producing his Bill or while it is before Parliament, to engage in negotiations with outside interests on matters with which the Bill does not directly deal. Assurances on this or that point will be demanded; and it will by no means be always possible for the Minister to take a high hand. These matters may be of two kinds-matters which will involve subsequent legislation, or at least subsequent endorsement by Parliament, and matters which are intended to be dealt with by regulation, usually at the discretion of the Minister. Matters of the first class are obviously Cabinet questions ; and

318

ECONOMIC TRACTS FOR THE TIMES

CHAP.

their treatment cannot be affected by any change in the procedure of legislation such as I have been discussing in this paper. But in relation to matters of the second class, the position of the Minister and the Government in resisting undue pressure by any particular interest would, I think, be greatly strengthened if the regulation-making power ceased to be a departmental matter, and became a function of some sort of representative Statutory Board or Commission. For it would be clearly useless to badger the Minister for pledges which he would be no longer in a position to give. An aggrieved interest might still, of course, urge its supporters to vote against the Bill; but something of its present power to bluff would be taken away. I have so far suggested certain changes in our methods of legislation and administration-and certain readjustments of the uncertain boundaries between these two-without questioning at all the present structure of the law-making machine. I am, however, like most other people who want to get things done, profoundly dissatisfied with the present working of the parliamentary system. The conditions of modern society have crowded both upon Parliament and-what is no less important -upon the Cabinet far more work than either can be expected to perform with even tolerable efficiency. A change in the form of legislation, applied to the social reform measures which are so expensive in parliamentary time, might do a little to relieve the pressure by transferring a good deal of detail from the Bills to regulations made under them; but it would not enable Parliament to get through its business in a reasonably satisfactory way. I am making the proposal far less with a view to removing parliamentary congestion than to making it possible to provide a more flexible basis for administration and to amend what is amiss more readily in spite of the congestion of Parliament. For any remedy for the major difficulties of the modern legislative process far more drastic measures will be neededmeasures which I have no intention of discussing in this paper. We may be compelled, as Mrs. Webb has suggested, to have two Parliaments or assemblies, working side by side, with distinct spheres of action, one body dealing entirely with social and

XIV.

SOCIAL LEGISLATION

economic matters, and the other with political and international questions. We may have to assimilate our procedure in dealing with social questions far more nearly to the procedure of Local Government, and to break away, in this field, from the parliamentary tradition. We shall certainly have to devise means of relieving the Cabinet from the pressure of a mass of routine business, in order to liberate it for thinking out a policy on matters of fundamental importance. But all these problems raise far wider issues than I want to discuss at present. I have contented myself with putting forward, very tentatively, certain secondary suggestions that might be no less tentatively applied. It will, perhaps, be convenient if I summarise them here in order to facilitate discussion. (1) Wherever possible, we should put less detail into our laws, and aim at providing only a general framework, to be built upon by regulations capable of amendment without passing a new Act. (2) Wherever possible, the power to make the necessary regulations should not be left to the Minister and his department, but entrusted to a statutory body, broadly representative of the interests concerned, and of the public generally. Regulations so made should require the sanction of the Minister, and should lie upon the table of the House of Commons, before becoming operative. (3) Wherever possible, before a Bill is presented to Parliament on any matter involving administrative complications, heads of proposals should be drawn up and circulated in advance, and published; and consultations should take place between the department and the interests concerned. (4) Wherever possible, after a Bill has been introduced, time · enough should be allowed to elapse between its publication and the beginning of the committee stage to allow further consultations to take place. (5) Advisory Committees are usually of little value, except in relation to scientific matters, unless they have fairly narrow terms of reference, a perfectly definite job to

320

ECONOMIC TRACTS FOR THE TIMES

CHAP.

xrv.

do, and at least some measure of responsibility for administration (even if this responsibility is subject to the Minister's veto). In fact, an ounce of Statutory Commission is worth a ton of Advisory Committee. (6) Royal Commissions and Departmental Committees should be encouraged to formulate actual heads of proposals for legislation, and to discuss these with outside interests before presenting their Reports. It will be observed that I have said nothing of the oftenmooted proposal to set up a representative National Industrial Council, or some similar body, under Government auspices. I do not, in fact, believe that such a body could be made to work successfully. It would have to be advisory, or at any rate this is the form in which the proposal has so far been put forward. It would have to have wide, and somewhat indefinite, terms of reference. And I do not well see how it could be given a clear and definite job to do. I am not saying decisively that the time for the creation of a representative National Industrial Council will never come, though I am very doubtful if it will. But I am sure that the right line of advance for the immediate future lies in the creation not of one high-sounding body of this type, with a far-flung reference and a purpose and status by no means well defined, but rather in a plurality of less ambitious experiments in particular spheres. And I should like to see a beginning made with the entrusting of the administrative regulation-making power over unemployment insurance to a special Statutory Commission.

XV WHY I AM A SOCIALIST I SUPPOSE that, for all Socialists, Socialism serves, in some part at least, as a guide to the whole of life. It is not merely a matter of political or economic policy, or a source of guidance in economic or political conduct, but at the same time a way of living in harmony with oneself, as well as with others. In my case, I know this is so. I could not be less a Socialist even if I were sure that all the practical policies of all the Socialist Parties in the world were demonstrably wrong. For to disagree with all these policies-unpleasant and upsetting as it would becould not, I think, shake the basis of my Socialist conviction. That conviction goes deeper than any practical economic or political policy can possibly go: indeed, all such policies are but fallible means to the attainment of the end which is the true idea of Socialism in my mind. This idea of Socialism is not a system, though there are certain features which any system that is to attempt to represent it must somehow embody. It is rather a way of living in relation to others, without which, at least as an ideal, I should find it impossible to live at peace within myself. It is not easy to sum up, or to express apart from the material integument of practical policy in which it must be clothed; but this paper is an attempt, honest if not wholly successful, to lay it bare, and to say wherein, for me, being a Socialist truly consists, and what part Socialism plays in the conception of my inner life. Let me say at the outset that, like most people, I am often conscious of living out of harmony with this inner ideal. I blame myself-and yet I do not wholly blame myself-for that. It is partly my fault; but it is also in part a matter of environment. For this Socialist ideal essentially involves living in and with the world, and not apart from it; and this implies, in large 32!

322

ECONOMIC TRACTS FOR THE TIMES

CHAP.

measure, an acceptance of the environment. The Socialist cannot afford to make too wide a cross-as Samuel Butler would have said-with the habits of living of those with whom he · comes in contact. His ideal is, through and through, an ideal of sociality; and he cannot, on the plea that his idea of sociality is not yet received by the world, withdraw from the world into an isolation of his own. By doing that he would be denying his ideal even more completely than by living after the world's way. This, of course, is no entire apologia. Quite apart from that cause, I fall short of what I set out to be in many other ways. Socialism, like any decent creed, may be a means of making a man behave better than he would without it; but it is no guarantee of good behaviour. Socialists have no more preeminence in personal virtue than in the moral abandon with which anti-Socialists used to be prone to credit them. For my present purpose, however, the question of personal adequacy is beside the point. I am seeking to define my conception of the Socialist ideal, and not my capacity for living in accord with it. And I have got thus far-that the Socialist ideal is essentially an ideal of sociality, that it involves a conception of life as lived with and among other men, and that this living with others is a fundamental part of the inner life of Socialism. William Morris stated a part of this aspect of the Socialist ideal when he wrote in his Dream of John Ball that 'fellowship is heaven, and lack of fellowship is hell'. And there is, in the statement of the creed attributed to the hedge-preacher of the Middle Ages, this further element that seems to me vital to the Socialist idea. The Socialist kingdom is of this world, and of no other, not in the sense that it is a purely material kingdom, but in the sense that its ideal value is to be realised here, on the earth that we know and among men like-minded and like-bodied with ourselves, and in no other-worldly or after existence, different in character and opportunity from the world we know. About immortality, the Socialist may hold what view he pleases. For my part, I have never desired individual immortality or been able to conceive it as in any way possible. I want to survive in and through my work, and in and through my successors in this world ; but in no other way that is peculiar

XV.

\VHY I AM A SOCIALIST

323

to me. My individuality, the self that underlies my actions and reactions, appears to me to be something essentially transient, something that is bound to wear out, and that I want to wear out in doing something worth while. I, as an individual, do not want to survive death; and I am sure I shall not survive it. But, while this view is fundamental to me, I have to recognise that it is not part of the common stock of Socialism. What is essential to the Socialist idea is that, whether a Socialist believes, or does not believe, in some sort of personal or individual immortality, he should believe that his business in this world is to realise in this world as much as he can of his ideal. An otherworldly Socialism is inconceivable; and the Socialist ideal seems to me to be inconsistent with any that regards this world as merely a place of tribulation and of purgation for a better life to come. Fellowship, then, is the first principle of this deeper life of Socialism. And fellowship involves, above all else, treating men as ends and not as means. 'Each to count as one and none as more than one' is, for many purposes, an admirable political and social maxim; but it is far too quantitative to be more than a very imperfect way of expressing the ideal. For fellowship does not count heads; or, if it does, it counts everyone as more than one-in fact, as infinite. Perhaps I can put my point more clearly in another way. Socialists, in practical affairs, seek to achieve a higher standard of social justice than prevails in the world today, or has ever prevailed in it as yet. But social justice is not of the essence of Socialism. For justice seems to imply a meting out to each of something quantitative and limited, whereas Socialism itself implies a real living in and for one another. A mother is not content to be just to her child; nor can a Socialist be content to seek justice for the human race. Fellowship involves social justice as a practical, political and economic conception; but it also involves much more. Men can be just to their enemies; but fellowship cannot live with enmity. That this idea of fellowship jars continually with one's daily ways of living is evident enough. It is simply impossible, in the ordinary affairs of the world, to transcend social habits that are

324

ECONOMIC TRACTS FOR THE TIMES

CHAP.

in direct contradiction of it. Differences of wealth are always marring fellowship, and, within what we call a single 'community', differences of social class interfere with it even more. I do not mean that fellowship cannot overstep these differences. Clearly it can, as it can overstep differences of nationality, of colour, of religion, and of everything else that divides man from man. But a wall is none the less an obstacle because you can get over it with a ladder; and all these differences are formidable obstacles in the way of fellowship. Personally, I am most conscious of the obstacles that arise from social and economic inequality, because I am most often brought up against them. Though I may say, and really believe, that 'a man's a man for a' that', I cannot, in fact, get away from the obstacle that Society has made one a pundit and another a hewer of wood and a drawer of water, and has given to them different upbringings supposed to accord with their different stations in life. With some men I have community of culture, education, ways of speech and social behaviour; and with others I have not. Whatever my social views and ideals may be, that is a present fact from which there is no escape, and of which I cannot help taking account. Practically, what I want most of all is to make these differences vanish in a fuller and more rounded life for the whole human race. I want this for all the world; but, rightly or wrongly, I want it more, and feel a greater responsibility for bringing it about, in the part of the world in which I live. I do not feel Nationalism, in this sense, to be at all inconsistent with Socialism, or with that Internationalism which all true Socialism evidently involves. That there are dangers in this selective fellowship with those of a limited and particular society I am well aware; but there is also danger that a sentiment too diffused may be too difficult to relate to the practice of life. My fellowship with my neighbour should be the means of fostering and not of subduing my fellowship with those who dwell further away. This impulse of fellowship which is at the bottom of my idea of Socialism is, I want to make it plain, a very different thing from any sort of altruistic sentiment in my mind. If the thesis

XV.

WHY I AM A SOCIALIST

be egoism and the antithesis altruism, then the synthesis, I should say, is Socialism. For to me, as a Socialist, Society is not something outside myself, but something of which I am a part, so that my well-being and that of Society are inextricably intertwined. I do not mean that I cannot enjoy personal happiness, or a high degree of well-being, even in a society that seems to me largely unhappy and diseased. I can, and do; but I think I could not enjoy these things unless I were, in some measure, also trying to realise my ideal of a social happiness and a social well-being common to me and to my fellow-men, and unless I believed that there was in the world already, and had always been, a sufficient foundation of community to serve as a startingpoint for the fuller achievement of these things. It is a part of Socialism, I believe, to regard Society not as an artificial construction made by men against nature for mutual protection through some social contract, but as fundamentally and inherently natural to man. This sense of Society as natural carries with it a denial of the opposition so often supposed to exist between regulation and liberty. It is no paradox for the Socialist that liberty does not consist simply in being let alone, but can be fully realised only within the framework of a common life. In one sense, indeed, all Socialists are Anarchists in their ideal; for they regard coercion as an evil, and the presence of coercion in the organisation of Society as a sign of its essential imperfection. But coercion and regulation are two very different things. The world is already full of rules and customs that most people observe without coercion or consciousness of duress. They can break these rules if they will; but usually they do not want to break them. The Socialist ideal seems to me to involve the substitution of the rule of consent for the rule of coercion. Perfect consent I do not expect ever to be realised; but it remains the ideal. And it is a possible ideal because the fundamental fact of man's sociality is there to build upon. There is a consciousness of consent; and in a healthy and well-ordered Society, the area of this consciousness will tend steadily to grow. It will grow easily, however, only in proportion as the obstacles to sociality are removed, and removed in the right

326

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CHAP.

way. I have said that the thing nearest my heart is the removal of those differences, largely the product of economic inequality, which within a single community shut me out from full fellowship with my fellow-men. But it matters how these differences are removed. It is possible to conceive of their disappearance through the destruction of the higher culture of the Society in which they exist. Even if this happened, I have faith enough to believe that a Society thus cut down to the roots would in process of time build up for itself a new culture that might be better and more universal than the old; but this way of universalising culture through its prior destruction would be terribly wasteful. It would be at best a desperate remedy in a Society where culture was mortally diseased. In any other case, we may reasonably look to the extension of culture and to its progressive transformation as it spreads over the whole people. We may hope to conserve and develop existing values, and to use them as a foundation on which new ones may be built. This is the Socialist meaning of the process of popular education; and it is natural and inevitable that, from Robert Owen's day, the demand for Socialism and the demand for education have always gone together. The demand for universal education is, indeed, but another aspect of the demand for equality ; and equality is but the political and social expression of the idea of fellowship. Those who value equality as a political concept do not mean that all men are really equal in any mathematical sense, or that all differences between them are due to differences of education or environment, or to remediable physical or inherited defects. They do not want to abolish the differences between men, but only those differences that stand in the way of fellowship. They want political and social equality in the sense that they want to stop any one man being treated merely or mainly as a means to some other man~s ends. The inmost life of Socialism, as I am conscious of it, consists largely in awareness of universal fellowship and social equality as the ideal, and demands, if a man who holds it is to live at peace with himself, that he should be reasonably active in furthering the practical advance of this ideal, and should in his

XV.

WHY I AM A SOCIALIST

own private affairs live reasonably in accordance with it. This inmost life is therefore essentially outward-looking and active or conative, rather than inward-looking or contemplative. Many of the faults of expression and much of the lack of clearness in this paper are due to the fact that it is only with an effort that I make myself look inward at all. For the Socialist, as for anyone else, an inner harmony is essential to happiness and well-being; but this harmony is like pleasure in that it comes most readily, not when we seek it, but when it lights upon us in the course of our seeking after something else. It comes to me with, or at least it cannot come to me without, the search for fellowship. If I sought happiness instead, I could not seek fellowship so well; and I should get both less fellowship and less happiness. This, as I write it, sounds priggish. There are, of course, many ingredients in a man's happiness besides the consciousness of pursuing any ideal, even that which he counts the most important. A Socialist is not only a Socialist, but many things besides. He has in his mind many other ideals, values many other things besides fellowship, and sets out practically to do many other things besides furthering the cause of Socialism. His personal affections, his tastes, count for much in his life; and he need by no means attempt to co-ordinate them all with his Socialist ideal. If they conflict, then indeed comes at least some unhappiness, unless and until the conflict is resolved. But ideals and tastes need not conflict; they may live side by side in the mind without jostling. This inmost life of Socialism that I have sought to describe is, then, not a complete way of living. I distrust the man for whom the Socialist ideal, or any other ideal, looms so large as to cover the whole of life. For that, I think, is a sign of inhumanity; and Socialism is above all a creed for ordinary men. Love of humanity need not submerge other loves-of wife, or children, or friends; indeed, these other loves are fires to keep it warm. Socialism is for me, I think, the most important single thing that exists. But I am not sure even of that. And I am quite sure that it is not the only thing that matters.

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G. D. H. COLE: SELECTED WORKS

PRACTICAL ECONOMICS

PRACTICAL ECONOMICS or Studies in Economic Planning

G. D. H. COLE

Volume 8

First published in 1937 This edition first published in 2011 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN Simultaneously published in the USA and Canada by Routledge 711 Third Avenue, New York, NY 10017, USA Routledge is an imprint of the Taylor & Francis Group, an informa business © 1937 H A Cole All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 13: 978-0-415-56651-3 (Set) eISBN 13: 978-0-203-83931-7 (Set) ISBN 13: 978-0-415-59840-8 (Volume 8) eISBN 13: 978-0-203-83954-6 (Volume 8) Publisher’s Note The publisher has gone to great lengths to ensure the quality of this reprint but points out that some imperfections in the original copies may be apparent. Disclaimer The publisher has made every effort to trace copyright holders and would welcome correspondence from those they have been unable to trace.

PRACTICAL ECONOMICS OR

STUDIES IN ECONOMIC PLANNING

BY

G. D. H. COLE

First published (Pelican Books) 1937

MADE AND PRINTEO IN GREAT BRITAIN FOR PENGUIN BGOKS LIMITED BY PURNELL AND SONS, LTD. PAULTON (SOMERSET) AND LONDON

CONTENTS CHAPTER

I.

PAGE

7

THE ESSENTIALS OF PLANNING

II.

SOCIALIST PLANNING-THE U.S.S.R.

III.

FASCIST

'PLANNING'-GERMANY

41 AND

91

ITALY IV.

AMERICAN 'PLANNING'-THE NEW DEAL.

137

V.

CAPITALIST 'PLANNING' IN GREAT BRITAIN

218

VI.

CONCLUSION

249

LIST OF CHARTS AND TABLES ECONOMIC ACTIVITY IN THE U.S.S.R. ECONO~YIIC ACTIVITY IN GERl\tfANY

ECONOMIC ACTIVITY IN ITALY

(Chart). (Table) .

(Chart) (Table)

(Chart) . (Table) .

ECONOMIC ACTIVITY IN THE UNITED STATES

ECONOMIC ACTIVITY IN GREAT 5

(Chart) (Table) BRITAIN (Chart) (Table)

PAGE

44 45

94 95

128 129 140

141

220 221

PRACTICAL ECONOMICS CHAPTER I THE ESSENTIALS OF PLANNING

OuR grandfathers believed, with the unquestioning

certainty of a religious faith, in laissez-faire. They held that, in economic matters, the State had only to keep out of the ring in order to ensure the best results. 'Private enterprise' would do all that was needed. Competition would ensure that consumers would be able to buy goods and services at the cheapest possible rates, and that full advantage would be taken of improving technical methods of production. The employer who charged more than the minimum price, or tried to carry on with obsolete methods, would go speedily to the wall. Only the fittest would survive. Moreover, competition would set the inventors and scientists busily to work devising new methods, so that science would flourish most greatly under the stimulus of the profit motive. Each person, in seeking his own economic interest, would be providentially furthering the interest of all. The search for profit would result in maximum production, because competition would keep profit down to the minimum needed to 7

8

PRACTICAL ECONOMICS

encourage enterprise, and would compel every profit-seeker to make himself as efficient a servant of the consumers as he possibly could. In these days, that simple faith has been eclipsed. Our fathers were much less certain of it than our grandfathers; and in ~our own day it is held at all only by way of obstinate reaction against the prevailing conditions. Some economists continue to preach the theoretical soundness of the older doctrine; but even they have to admit that the chance of seeing it applied in the modern world, as it was largely applied in Victorian England, has become very small indeed. The laissez-faire doctrine was always essentially capitalist in its outlook. It was conceived in tern1s of a number of private employers, each possessing certain instruments of production and a certain capacity to employ labour. It took the private ownership of capital for granted. Indeed, while it demanded that the State should as far as possible abstain from all interference in economic matters, there was one form of State intervention which it regarded as so axiomatic as not to constitute any interference at all. It looked to the State to uphold the 'rights of property'; for on the inviolability of these rights the power of 'private enterprise' to do its beneficent work was believed to depend. This form of State intervention was held, under laissez-faire principles, to involve that the right to

THE ESSENTIALS OF PLANNING

9

acquire property should be open to all. Capitalthat is, property in the means of production-was represented as the result of 'abstinence.' The capitalist was simply the indivjdual who had refrained in the past from living up to his incomeor of course, his heir, for inheritance was also taken for granted. The man without property, the wage-earner, was simply the person who had been improvident enough not to save, or, when it was admitted that his earnings were too low for saving to be possible, the person whose productive capacity was too small to make him worthy to join the capitalist class. Moral or economic shortcomings

kept him where he was; and the fact of his exclu-

sion from the class of property-owners was therefore no detriment to the justice of the economic system, which rewarded all men perfectly according to their deeds. The system handed out rewards for productive service in the form of wages and the profits of the active employers; and it handed out rewards for the moral service of 'abstinence '-the second great economic virtue-in the form of interest on invested capital. Rent, indeed, was always rather difficult to fit into this scheme of things; for land, unlike capital, could hardly be regarded as the product of abstinence. The earlier classical economists had on this ground something of a prejudice against the landlord. But their successors sloughed it off by regarding land more

10

PRACTICAL ECONOMICS

and more as a form of capital, interchangeable by purchase and sale with other forms, and by dwelling more and more on the part played by capital, and therefore by abstinence, in improving the value of land. In the early days of modern industrialism, this view of the capitalist as the 'abstinent man' had far more plausibility than it has to-day. Many of the early industrialists did rise from almost nothing, making good by their own enterprise and gradually increasing the scale of their operations by plough-

ing back their profits into the business instead of expanding their own consumption at an equal rate with their incomes. Some men do rise from the ranks in this way even to-day, far enough to become capitalists on a petty scale. But in these days of joint stock enterprise, no man, however talented or abstinent, gets far merely by saving out of his income. In order to 'go big,' he must get persons already in possession of large capital to back his schemes. Our self-made millionaires have been made, not by personal abstinence, but by their ability to get command of capital owned by others. Early machine capitalism, in the rising industries of the first half of the nineteenth century, was highly competitive. There were many rival firms, each producing only a small fraction of the total output, and each trying to capture as much of the market as it could. Prices were determined by competition;

THE ESSENTIALS OF PLANNING

11

and each manufacturer had to make himself efficient enough to compete with his rivals, on penalty of losing his market. Prices did tend to fall as productive efficiency increased; and restriction of output in order to maintain prices was in most cases out of the question. To this extent, the consumers did benefit, and the system did promote maximum production. It was under these conditions, applying to the most important and rapidly growing industries, that the doctrine of laissez-faire came to be widely accepted as embodying a universal economic truth. But as the scale of production increased, until in many industries it became impossible for an employer to start business economically in a small way, and then gradually expand his scale of operations, conditions became very different. In one industry after another, the situation of perfect competition between a large number of rival firms ceased to exist. In certain new industries, of which railways are an outstanding example, it never could exist. For it was manifestly wasteful to build several competing railways to carry goods and passengers between two neighbouring towns when one railway could do all that was needed at less capital cost and with smaller running expenses. The supply of gas and that of water were other early instances in which monopoly, and not competition, seemed clearly to make possible the provision of services at the lowest cost.

12

PRACTICAL ECONOMICS

Monopoly, however, while it might reduce the cost of supplying a service, gave no guarantee that the consumers would benefit by the lower cost. The monopolist, if he was let alone, could charge what he liked; and his price policy would be settled, not by competitive necessity, but by the elasticity of demand for his particular product in conjunction with the variations of his costs at different levels of output. It might pay him, in exceptional cases, where demand was very elastic and his commodity was produced under conditions of diminishing cost as output increased, to sell at the lowest possible price. But this would not necessarily, or even commonly, be the case. In most instances, the price that would give the monopolist the highest profit would be a higher price than the minimum at which it would pay him to produce. This being evident, the case for laissez-faire in these particular instances, went by the board. Hesitantly, because it seemed dangerous to admit exceptions to the general freedom of 'private enterprise,' the necessity for some form of public regulation was admitted in the case of monopolies. But the exceptions were kept within the narrowest possible limits; and even within these limits as little regulation as possible was actually enforced. But next, with the further growth of technique, there arose a situation in which, short of actual monopoly, the necessary scale of production be-

THE

ESSENTL~LS

OF PLANNING

13

came so large that there was room in the 1narket for only a very few firms, and the entry of fresh competitors became very difficult, because the new entrant could not begin in a small scale and work his way up, but n1ust from the start invest a huge capital in order to produce at all. Where such conditions exist, it becomes easy for the few competitors, if they so desire, to confer together, and to establish what is in effect a monopoly by agreeing upon the prices at which they will sell, and perhaps also about the quantities and varieties of goods that they will place on the market. The cartel, with more or less developed common selling agreements, is the most systematic form of this secondary type of monopoly; but, short of the cartel, it can be found in less formal price-fixing and similar arrangements in many branches of modern industry, and on both a national and an international scale. The advocates of laissez-faire, faced with this type of monopoly, hesitated what to do. In the United States, the attempt was made, with singular lack of success, to outlaw it by prohibiting all arrangements for price-fixing between businesses, and by ordering the actual dissolution of trusts and combines held to be contrary to the public interest. In Germany, on the other hand, where the notions of economic individualism were never so strongly held, the State sought to control this type of monopoly by regulating the prices which it was

14

PRACTICAL ECONOMICS

allowed to charge, and by establishing some degree of public supervision. Finally, in Great Britain, it was allowed to grow practically unchecked, but did, in fact, grow less rapidly than in either Germany or America until recent years, probably because British industry was producing more extensively for a diversified world market, and free trade seemed in part to protect the home consumers against restrictive policies or high prices enforced by the combines. It became, however, increasingly apparent that, under conditions of large-scale production, the capitalist system was very far from guaranteeing to the consumers maximum production at minimum prices. It also became apparent that another assumption of the laissez-faire doctrine was not being fulfilled. It had been assumed that, just as employers would all have to sell their goods at the lowest price, so would labourers, competing for jobs, be compelled to sell their labour cheap enough to make it worth while for the employers to employ them all. It was assumed, in fact, that unemployment, save as a comparatively unimportant effect of unavoidable friction in changing over from job to job, would not exist. But it became plain that in reality unemployment, on a much more serious scale than this, could and did exist. Economists often took refuge in blaming the Trade Unions for maintaining wages at an uneco11omic height-that is, at too high a level to

THE ESSENTI/\.LS OF PLANNING

15

make it profitable for employers to engage all tl1e available labour. For a tin1e this explanation was widely accepted; but it was gradually realised that there might in truth be no wage-level at which employers would be prepared to engage all those who were ready to work. This might be the case because the lowering of wages would at tl1e same time lower purchasing power, and so narrow the market for consumers' goods. It was attempted to argue that any such decline would be offset by an increased demand for capital goods, arising out of tl1e higher profits made possible by the lower wages. But the answer to this is that, as capital goods are, in the last resort, useful only for making consumers' goods, the demand for capital goods must depend on the prospective demand for consumers' goods. It was then argued that the lower wages would not, in fact, decrease purchasing power, because prices would fall to a corresponding extent. But, if prices did fall to this extent, there could be no inducement to the employer to engage more labour; for this inducement depends, not on the level of costs alone, but on the relation between costs and selling prices. Finally, it was argued that, as more workers would be employed, as much or more would be paid out in wages as before, despite the lower wage-rates. This, however, is to assume the very thing that is to be proved-that more workers would actually find employment.

16

PRACTICAL ECONOMICS

In truth, wherever competition is so limited tl1at firms are able to choose their own level of output or price-the two of course going together-there ca11 be no assurance of either maximum production or minimum price, or of full employment of the available supply of labour. Laissez-faire no longer offers, even in theory, the prospect of maxin1um economic advantage. Nor is this all. As technique advances, the differentiation of products, as well as the necessary scale of production, increases. But each producer of a differentiated product-an Austin car as against a Morris for example, or one patent breakfast food as against another-is in a position of partial, though still competitive, monopoly. Indeed, competition among the rival monopolists can be exceedingly keen; for, in face of ~ limited total market, each wants to sell as much as he can in order to get the full advantages of the economy of mass-production. But whereas, when products are relatively undifferentiated, this competition can be carried on only in terms of price, it is conducted under conditions of monopolistic competition largely by means of advertisement of the rival branded and patented products. Thus advertisement comes, in many cases, to involve a substantial addition to the costs of production; and yet no firm can afford to dispense with it because, in face of the advertising tactics of its rivals, it will not be able to make

THE ESSENTIALS OF PLANNING

17

the existence or merits of its wares known to the consumers, even if it is offering goods of equal quality at a lower price. When a number of rival monopolists are competing in this way, the costs of production are artificially inflated; for each firm is prevented by its rivals from taking full advantage of the economies of mass-production, and the costs of advertisement have to be added on to the unnecessarily high costs of manufacture. Moreover, the patent laws, whereby each firm acquires a monopoly for certain gadgets or processes against its rivals, prevent the consumer from getting the best possible article, as this would involve the pooling of the various

patents. 'Vhere, in order to remedy these defects, the rival producers do combine, the consumer is merely faced with a complete monopoly, and it is not by any means assured that the benefits of cheaper production will be passed on to him in lower prices. Side by side with these developments of monopoly in its various forms in the field of manufacture, there appears a strong tendency towards the increase of distributive costs. This takes two main forms. In retail distribution, the principal defect is that costs tend to be inflated by excess of competition. For, whereas in the field of manufacture it becomes increasingly difficult for the small-scale business to exist at all, in many branches of retail

18

PRACTICAL ECONOMICS

trade it continues to be relatively easy to make a start with very little capital. This induces a very large number of persons to enter retail trade, attracted by the possibility of working 'on their own' and escaping from the discipline of wageearning employment. The rate of mortality among these small-scale traders is high; but there are always plenty of new entrants ready to take the places of those who fail. Inevitably, the existence of a large number of redundant retailers raises the level of costs; for each has to accept less trade than he could economically handle. The resulting wastes are very considerable indeed; and for these the consumer has mainly to pay, tho11gh a part falls on the unsuccessful retailers, who either lose their small capital and fail, or carry on at a very low level of rem11neration for tl1emselves and their invested capital. But why, it may be asked, are not these highcost small retailers destroyed by tl1e competition of the larger capitalist firms ? Partly because the small retailer offers forms of service-credit to poor purchasers, immediate delivery, the nearness of his little shop to the purchasers' house; a11d so onwhich the large store in many cases does not supply; and partly because the costs of the large stores, which are in active competition with one another, are inflated by the expenses of advertisement. Moreover, the small retailer, having sunk

THE ESSENTIALS OF PLANNING

19

his savings in his shop, is often prepared to carry on at a very low rate of return until his scanty capital and credit are exhausted. Retail trade, then, is very wastefully conducted from the standpoint of the consumer. But wholesale trade is no more immune from criticism. Goods~ on their way from the producer to the consumer, often pass through an unnecessary number of hands. In addition, wholesaling, which demands a relatively large capital, lends itself easily to monopolistic arrangements among the firms engaged in a particular branch of trade. By restricting sales through high prices, the wholesaler can often inctease his bargaining po\ver against the producers, who scramble the more to sell him their wares the smaller the quantity he is ready to buy. This enables the wholesaler to buy most cheaply when he needs least to sell, or in other words when he charges a high price to the final retailer. His margin of profit is thus apt to be larger on a small than on a big turnover. Nowhere is monopoly more dangerous than in wholesale distribution; for the distributor, unlike the manufacturer, tends to be faced with rising costs as turnover is increased. In face of all these restrictive conditions, it is no longer possible to contend that laissez-faire offers any assurance of high output or low prices to the consumers. On the contrary, it seems to involve more and more evident wastes. These wastes occur

20

PRACTICAL ECONOMICS

both where production and distribution remain in the hands of numerous competing firms, and where this sort of competition is replaced by complete or partial capitalist monopoly. For in the former case the economies of large-scale production are to a great extent lost; and these economies are of ever-increasing importance under modern technical conditions. And, where monopoly tends to replace competition, it is apt to prefer restriction to plenty, because the highest profit can be secured by limiting supplies in order to maintain prices. Moreover, over a large part of the field, advertising expenses swallow up a considerable part of the saving in costs of production made possible by improving technique. Under these circumstances, the demand for a planned economy steadily gains force. Planning, under public auspices, and with a view to the satisfaction of the consumers' needs, offers the prospect of eliminating the wastes inherent in unregulated competition, whether of the older or of the newer monopolistic variety; and it also affords the means, in industries already under large-scale monopolistic control, of substituting a policy of plenty and cheapness for one of scarcity based on high prices and profits. The old laissez-faire doctrines, in effect, reckoned without two forces which l1ave come to be of paramount importance under modern conditions-the economy of large-scale

THE ESSENTIALS OF PLANNING

21

production, including a complete pooling of patent rights and an elimination of the costs of competitive advertisement, and the existence in many industries of conditions necessarily leading to monopoly, so that the alternatives are no longer State regulation and free competition, but planning under restrictive capitalist control and planning under public auspices, with a view to the maximum satisfaction of the consumers' needs. The conception of a 'planned economy' remains, however, so far vague and ambiguous. For some would-be planners envisage 'planning' primarily as a conferment of regulative power over each industry on some organisation representing the capitalist businesses engaged in it, under no tr:Lore than a very general control exercised by the State in the general interest; while others insist that planning involves not merely the separate organisation of each industry into a co-operating group, but a rigl1t adjustment between industries and a social direction of the distribution of labour and capital between alternative uses. One set of planners, again, regards planning as a means of so reorganising capitalism as to give it a new lease of life;· while another looks to it as a mearis of replacing capitalism by social ownership and operation of industry. Now clearly the conception of planning as meaning merely the bringing of each industry under the

22

PRACTICAL ECONOMICS

control of a common authority representative of the capitalist firms engaged in it is in effect a proposal for the generalisation of capitalist monopoly. For the natural inclination of authorities thus constituted must be to pursue the restrictive policies associated with capitalist monopolies as they now exist. It is indeed usually proposed that the working of this system of compulsory monopoly should be made subject to some sort of collective control. But this only brings us face to face once more with the difficulties of making such controls effective from the consumers' point of view-difficulties which have been amply illustrated by the history of past and present monopolies and, more especially, of such compulsory monopolies as the agricultural Marketing Boards and the regulative agencies under the Coal Mines Act of 1930. If scarcity pays the monopolist better than plenty, it is not easy for the State to compel him to pursue plenty, as long as it leaves him to conduct the actual businessespecially if the State itself is largely dominated by tl1e influence of the monopolists. Planning, in this sense, instead of making goods cheaper for the consumers, is apt to put the authority of the State behind policies designed to make them dear -as it has actually done under the Coal Mines Act and in the various schemes of agricultural marketing. It is sometimes argued that this would not occur

THE ESSENTIALS OF PLANNING

23

if planning of this type were generalised, and a common council of all the capitalist planners set up to co-ordinate their activities. For in that case, it is argued, each group would be alert to correct the anti-social policies of the others. But it is surely far more probable that all the leading groups would join togetl1er to exploit the public, on principles generally agreed. Honour among monopolists would lead to mutual endorsement of restrictive policies, as long as these did not pass certain limits of extortion. There would be no substitution of the principle of plenty for that of scarcity conducive to maximum profit. Planning, if it is to involve any real unleashing of the forces of production, must be controlled by an authority aiming at plenty, rather than by one dominated by the notion of producers' profit. But this means that planning n1ust involve disinterested operation of industry, and not merely an external public control; for all experience goes to show that it is impracticable to impose a policy on industry from outside. If plenty is to be secured, plenty must be the object of those who are actually administering the machine; for the actual administrators are bound to be decisive in settling the policy which is to be pursued. Planning, then, if it is to be effective in securing plenty, turns out to involve disinterested, or rather consumer-interested, management. It involves either

24

PRACTICAL ECONOMICS

State operation of industry, or at all events operation by persons whose concern is with public service rather than private profit. This, however, strikes at the very roots of 'private enterprise.' It requires some form of 'socialism,' at any rate in the administrative sense, even if the administration of industry is to be entrusted, not to the State, but rather to special ad hoc boards, or commissions of impartial administrators appointed under the State's authority. But there is a further requirement-that planning sl1all proceed, not within each industry or service regarded as a perfectly self-contained unit, but with the object of securing the best possible allocation of the available productive resources to different activities, and therewith the fullest possible satisfaction of the consumers' needs. If each industry is organised separately as a unit, wasteful competition will only be transferred to a higher plane. The Gas Board will be wasting resources in trying to induce consumers to use more gas, while the Electricity Board is hard at them to use more electricity. Each controlling agency will be seeking to maximise the consumption of its own wares, irrespective of the repercussions upon other industries. This is apt to be the consequence of piecemeal planning, as it is already practised in certain services. But it is clearly unsatisfactory. It involves

THE ESSENTIALS OF PLANNING

25

many of the same wastes as arise under conditions of 'monopolistic competition' where industries are privately owned and controlled. Maximum satisfaction of the consumers' needs involves interindustrial planning, not the mere unification of each industry as a separate unit. Planning of this comprehensive sort is fully consistent with the division of responsibility between distinct administrative authorities for each separate industry. But it means that each ad hoc industrial authority must work to a general programme laid down by some co-ordinating authority for industry as a whole. It involves, in other words, some sort of National Economic Plan such as exists to-day in Soviet Russia, and nowhere else in the world. But, as soon as the idea of such a comprehensive Plan is accepted, other considerations arise. Capitalism accepts, and works in relation to, tl1e distribution of incomes which it finds actually in being. It produces for a market which it takes, broadly, for granted. Each capitalist producer, or group of producers, tries to swing demand his way. But he assumes that, if consumers spend more on his goods, they will have less to spend on the products of other industries. He takes the income structure of the community as it is. As fast as capitalist production for profit comes to be replaced by publicly controlled production,

26

PRACTICAL ECONOI\1ICS

new standards of valuation come into play. A State attempting to plan industry in tl1e general interest cannot take the existing structure of consumers' demand as a postulate: it has to consider whether a different structure of demand would contribute to a higher standard of social welfare. It has to consider needs, and not merely demands arising out of the existing distribution of incomes. As soon, however, as needs come to be considered, the distribution of incomes comes itself under criticism. Up to a certain point, it is possible for the State to leave the original distribution of incomes as it was, but to modify its effects by redistributive taxation, of which the proceeds can then be applied to the financing of social services. The State can in this way supply the poorer consumers with certain services either free, as in the case of elementary education, or at a reduced price, as in that of subsidised housing. Or it can pay out sums derived from taxation as incomes to the aged, or the unemployed, or the sick, and leave the recipients to spend the money as they think best. In modern times, the State has made increasing use of both these methods, though there has been at the same time a tendency so to adjust the tax-system as to place part of the cost of social services upon the poor-by higher indirect taxation for example, or by exacting compulsory contributions under social insurance schemes.

27

TI-lE ESSENTIALS OF PLANNING

The State can also, within certain limits, modify the original distribution of incomes, apart from taxation, by prescribing minimum wage-rates. But this method, which is usually applied only to industries in which wages are held to be abnormally low, cannot be carried at all far under the capitalist system, largely because of the international complications which it is certain to involve. For if wages are raised in certain industries above the level they would reach in the absence of State regulation, the effect is apt to be a reduction of the numbers employed in these industries. This need not be the case, where the higher wages lead to the reorganisation of the industries concerned

on more efficient lines, as actually happened to a considerable extent when the Trade Board system was introduced. But where an industry is alr~ady being carried on with ordinary efficiency, the enforcement of higher wages is likely in most cases to reduce the willingness of the firms in it to employ labour. In any case wages cannot be much increased, in some industries as against others, without causing a shift of demand from the industries in which the increases have occurred to those in which they have not-or, of course, a diversion of demand from home to foreign products. If wages were increased simultaneously in all industries, the effects would be somewhat different. The possibility of a diversion of demand to imported I

28

PRACTICAL ECONOMICS

products would remain, but this would occur, over industry as a whole, only if the foreign exchanges were prevented from adjusting themselves to the changed relation between home and foreign costs. Given adjustable exchange rates, the effect would be principally to shift demand away from those industries in which labour cost formed a large part of total cost of production towards those in which labour cost was a smaller part of the total. This might carry with it some readjustment of imports and exports, the latter group of industries increasing, and the former decreasing its exports, while the reverse would be true of imports. What matters to us here is that any considerable attempt by the State to raise wages by law is likely, under the gold or any fixed exchange standard, to increase imports and reduce exports, and therewith to contract profits and employment. It will therefore be strongly opposed. This does not hold good under a system of adjustable exchange rates; but even so the effect is to re-distribute demand between different types of goods and services, raising profits and employment in some industries and lowering them in others. This means that there will be strong opposition to such a policy from the industries likely to be affected adversely. Nor does it at all follow that the result of the changes will be to benefit the industries of whose products it is desirable, for social reasons, to increase the consumption.

THE ESSENTIALS OF PLANNING

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The compulsory increases in wages will, of course, have other effects as well. As selling prices will not need to rise in the same proportion as wagesnon-wage costs remaining as before-there will be, if total employment remains the same, a rise in the total real income in the hands of the wageearners, at the expense of the incomes represented by non-wage costs, e.g., those of the recipients of rent and interest and profits. Tins again will cause a shift in demand, but in this case the shift will be definitely good from the social standpoint, because it will be on the whole a transfer of demand from richer to poorer persons. This effect, however, may not be produced if the rise in \Vages reduces the volume of employment by diverting activity to forms of production in which more capital and less labour is employed. When wages rise, capital will become for the moment relatively cheap, and there will be some impetus given to the mechanisation of industry. This will cause a larger demand for capital. But the fall of non-wage incomes will tend to reduce the supply of savings, and therewith to raise the rates of interest demanded by lenders of capital. The higher interest rates will thereupon have two effects. They will cause a rise in non-wage costs, which will be reflected in higher prices, and will thus cancel a part of the advantage of the higher wages in terms of real purchasing power. And they

30

PRACTICAL ECONOMICS

will also do away with the relative dearness of labour, by making capital dearer as vvell, and thus check both the impetus towards mechanisation and the shift from industries using a larger to those using a smaller proportion of labour in production. Thus States under capitalism can do only a little to raise wages without reducing employment, and can do hardly anything unless the foreign exchanges are left free to adjust themselves to the changed level of costs. 1 Moreover, even under an adjustable exchange system, the effect of the higher wages will be liable to be, in the short run, a redt1ction in employment through mechanisation and, in the long run, a rise in selling prices, which will take back most, if not all, of the real advantage conferred on the wage-earners by the change. In view of all these complications, States, under the capitalist system, are likely to be very reluctant to make any extensive use of their power to raise wages. The only country which has followed this wage-raising policy ov.,er an extensive field is Australia, where, as wages rose, tariffs were put up to keep out the imports which would otherwise have come in. This enabled the industrial workers to get higher incomes at the expense of the farmers, who They can, indeed, act under a fixed exchange system if they are prepared to raise tariffs high enough to keep out the imports that would otherwise come in. This was done in Australia when the minimum wage system was extensively used for raising wages after its first introduction. 1

Tl-IE ESSENTIALS OF PLANNING

31

had to pay more for their requirements of industrial goods \Vithout being able to sell their agricultural goods at higher prices in export markets. The farmers' opposition therefore set limits to the height to which wages could be raised; but within these limits the industrial workers did get higher real wages. In such a country as Great Britain, however, the very different balance between industrial and agricultural production would prevent this result from being achieved. In face of difficulties of this order, 'progressive' Governments \Vhich set out to increase the real incomes of the poorer classes are impelled to pro-

ceed much more by extending the social services

than by raising wages. Here too, l1owever, there are powerful obstacles to be met. It requires a very strong Government to raise taxation levied on the rich enough to make any substantial difference in the class-distribution of incomes. For, under capitalism, it is the capitalist who has to provide employment; and the amount of employment he is willing to provide depends on the degree of confidence which he feels in the prospect of profit. His confidence, however, is apt to be reduced when he finds himself confronted with what he regards as a 'confiscatory' Government. He is apt to employ less labour, and thereby to destroy fully as much purchasing power as the Government's measures have conferred on the poorer classes.

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PRACTICAL ECONOMICS

It is in fact very difficult to alter materially, under capitalism, the distribution of incomes which arises out of the unrestricted working of the profit system. If the State wants to alter the distribution of incomes a great deal, so as to bring production much closer to its conception of real social needs, it soon finds itself under the necessity of changing the economic system instead of merely tinkering~.-with it. It discovers that capitalism cannot be 1nade to serve the real needs of the people; and it either gives up the attempt to get real needs satisfied, or goes on to a frontal onslaught upon capitalism itself. For it becomes plain that, if capitalism is abolished and replaced by a planned system of production tinder collective control, there will be no limit to the extent to which real needs can be met, short of the absolute limit set by the extent of the community's productive power. Let us suppose that capitalism has been abolished, and collectively planned production under social ownership has been substituted for it. What, then, is the situation ? The community possesses certain productive resources, all of which it means to use in meeting what it considers the most urgent needs. It therefore proceeds directly to allocate these resources to the various forms of production which it considers most important. What happens next? It would be possible for the State, instead of paying anybody an income in

THE ESSENTIALS OF PLANNING

33

money, simply to ration the goods and services among its citizens in accordance with its collective estimate of their respective needs. It may in fact do this in the case of a substantial number of goods and services; but it is unlikely to do it with the majority. For, though there are certain elementary needs which everyone shares, outside this range of needs what people want most is largely a matter of temperament. When once the elementary common needs have been met, human needs have not been fully satisfied; but the next great need is to be allowed the power of choice. Everyone needs moderate luxuries as well as sheer necessaries; but everyone's need is not for the same luxuries. Accordingly, if everyone cannot have as much of everything as he would like to have if he could have it for nothing-and we may take it for granted that everyone cannot-the sensible course is to put prices on things, and let people buy what they want most. They can, however, buy only what is on the market-that is, what the planned economy chooses to supply. But a planned economy, planned with the object of satisfying human needs, will aim first of all at satisfying the basic human needs, and thereafter, up to the limit of the available productive resource, at giving people what they want-subject, of course, to the power to refuse supply of definitely noxious goods, such as opium, or to make artificially dear B

34

PRACTICAL ECONOMICS

goods of which, short of entire prohibition, it wishes to discourage the use. The resources of production, beyond those employed in meeting basic needs-and of course those required for the maintenance and increase of capital-will therefore be directed to giving the consumers what they want. But what will the consumers want ? The demands made by the consumers depend largely on their incomes; or, in other words, the total structure of demand is largely determined by the way in which incomes are distributed in the community. The State, beyond insisting on an adequate standard of nutrition, clothing, housing and education, and discouraging noxious forms of consumption, need not concern itself with the tastes of its citizens. It has no preference of its own for supplying one thing rather than another. But it is concerned that what it supplies shall give as much satisfaction as possible; and it is accordingly concerned to promote as near an approach to equality of consuming power as is consistent with getting production efficiently carried on. In practice this means, in the earlier stages of a planned economy, three things. It means the liquidation, as speedily as possible, of the forms of income which arise not from personal service, but from the possession of property in the means of production or of claims based on the investment

THE ESSENTIALS OF PLANNING

35

or loan of capital. It means, secondly, the provision for all citizens of a minimum income, in goods or in money or in both, sufficient to supply the basic needs of life. And it means, thirdly, the sharing out of the remaining products as nearly as possible in proportion to the value of the personal services rendered by the various producers, but subject to a maximum limit designed to prevent the re-emergence of economic class-distinctions in a new form. This is not a theoretically ideal distribution of income: it is the best practical distribution obtainable in the earlier stages of the working of a planned economic system based on public ownership. And it is this form of income distribution which, when it is established, will determine the nature of the demands to which production will have to respond. Beyond question, a system in which inequality is thus limited will be much easier to plan for than a system in which gross inequalities are allowed to prevail. There will be, under it, no question of leaving any productive resource unused unless it is regarded as economically preferable to scrap it and replace it by a more efficient instrument for the satisfaction of needs and desires. There will be no unemployment save frictional unemployment, which must exist to some extent under any system. All productive resources, including all human agents,

36

PRACTICAL ECONOMICS

will be used to the full, up to the point at which more leisure seems to the common judgment ·preferable to more goods. Production of useful things will be limited only by backwardness of technique and by the demand for leisure. Within these limits, maximum production will be continually achieved, as it never has been or ca_n be under capitalism, because capitalism makes private profit and not service the controlling factor in deciding whether things are to be produced or not. So far I have spoken theoretically. But clearly what I have been describing is what actually happens to-day in the Soviet Union. True, the Russian standard of living is still very low-much lower than the standards which exist in advanced capitalist countries. But up to the limits set by productive power the Soviet Union is producing all it can, whereas of no capitalist country can the same be said. Moreover, the planned system of the Soviet Union begets not only maximum production, but also, within the bounds of practicability, maximum welfare. It not only produces as much as it technically can, but distributes the product as well as it economically can. It is true that, for the present, the need to provide vast masses of new capital for the purpose of industrialising a great backward country must to some extent check the immediate rise in the standard of living-in order to make

THE ESSENTIALS OF PLANNING

37

possible a more rapid rise in the future; and it is true that the need to arm heavily for defence in a war-threatened world also stands in the way of improved social conditions. But the Soviet Union does not condemn its citizens to unnecessary poverty by sheer failure to use the productive resources which lie ready to its hand. This, however, is exactly what the 'free' capitalisms of Great Britain and America habitually do. But what, it may be asked, of the planned capitalisms of the Fascist States-Germany and Italy? Has not Germany, at any rate, with her 'Plan of National Self-Sufficiency,' come near to abolishing unemployment, and bringing all her productive resources into active play ? Yes, in a sense she has. But there is a vital difference. Germany has reduced unemployment very greatly by measures of re-armament and national economic equipment for self-sufficiency in face of war. But whereas the object of full employment in the Soviet Union is to raise the standards of living for the whole people, the object of German employment is to make Germany more formidable in a military sense. But, it may be said, what does the object matter, as long as full employment, or something not far short of it, is actually secured ? It matters a great deal, for two reasons, even apart ffrom the not unimportant reason that the German way

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disastrously menaces the peace of the world. It matters, first, because the German way of securing full employment, so far from raising, actually lowers the standard of living of the people, both by diverting productive resources into the supplying of military demands and by twisting the whole productive system into inefficiency by causing to be made at home goods which could be far better purchased abroad by exchange. The object of full employment is not full employment, but 1nore production and better distribution of the products to the people. Employment is not an end but a means. It should be a means to welfare: Germany makes it a means to predatory power. Secondly, the object matters because the German way of reducing unemployment involves huge unproductive expenditure by the State, and threatens the whole economy with collapse the moment this expenditure slackens off. It piles up public debts to create not means to future wealth, unless wealth can be got by sheer brigandage, but things which either produce nothing, such as armaments, or prevent the German economic system from developing in the most productive way. The entire economy becomes adjusted to a depressed standard of living, and dependent on the maintenance of uneconomic demand. It is therefore self-destructive, unless it can sustain itself by brigandage. But one thing clear about modern war is that, economically, it

THE ESSENTfALS OF PLANNING

39

cannot possibly benefit even the victors. International brigandage is not a possible road to national wealth. In the three studies which follow, an attempt has been made to sum up, very broadly, the outstanding features of three recent-but very different-attempts at planning. The Soviet Union represents planning for human welfare, on a basis of common ownership. The Fascist countries represent planning for war, on a basis which preserves capitalist inequality and even exaggerates it by measures which must lower the workers' standards of life. The United States of America represents-what? Certainly, neither of these, and certainly, in a fundamental sense, not planning at all. The 'New Deal' has never been a plan, or aimed at a planned economy. It has been a series of expedients, designed to see capitalism safely through a bad time, and so arranged as to be as far as possible terminable as soon as the emergency is over. It may be held, on this ground, that a study of the 'New Deal' is out of place in this book. But it is not. For planning can arise without being itself planned. Expedients adopted in an emergency may so establish themselves as to become irremovable. Planning may emerge, in at least a partial form, without any single comprehensive plan being laid down, or any single comprehensive idea behind it.

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Now clearly this is the way in which some sort of planning looks most likely to arise in Great Britain, if it arises at all. We have already in Great Britain our expedients, worked out in face of our special emergencies. We have our Agricultural Marketing Boards, our Coal Mines Acts and the control schemes established under them, our Steel Corporation, our Exchange Equalisation Fund, and a host of other innovations that have at least some appearance of planning in this or that paiticular field. I have included a study of the 'Roosevelt experiment' because its history throws some light on the working of this sort of pseudo-planning in a capitalist economy in certain respects not unlike our own, and because it provides a telling contrast of method to both the Fascist and the Soviet systems. Finally, I have added a short chapter dealing with British 'planning.' But this is no more than the merest outline. I would refer readers who want fuller treatment to my Principles of Economic Planning, in which the entire problem, in its relation to Great Britain, is discussed at much greater length.

CHAPTER II SOCIALIST PLANNING-THE U.S.S.R.

other countries have introduced In recent years an increasing element of planning into their economic structure, Soviet Russia is, of course, the one country in which any thorough-going attempt to institute a planned economy has been made. We have therefore evidently to take most careful notice of the Russian example; but before we set out to comment upon the achievements of planning in the U.S.S.R. it is important to consider wherein the problem which the Russians have had to face is like and unlike the problems of planning elsewhere-and especially in the more highly industrialised, far wealthier and more educated societies of Western Europe and North America. There are, obviously, certain outstanding differences. Socialist planning in the U.S.S.R. came as the sequel to war, revolution, civil war, and economic blockade. The old Czarist system, with its remarkable contrasts of large-scale industrialism and exceedingly backward peasant production, collapsed under the strain of war far sooner and more completely than the economic systems of the more

ALTHOUGH

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advanced belligerent countries. This economic collapse was an important factor in causing military defeat and preparing the way for revolution. But it meant that the revolution inherited, not an economic structure working with its normal degree of efficiency, but only the ruins of the pre-war Russian system. The Bolsheviks took over the control of a country already broken on the wheel of war, and desperately short both of necessaries for immediate consumption and of the means of replenishing its stock by fresh production. Moreover, in the circumstances which existed for some time after the revolutions of 1917 these conditions were bound to get very much worse. Under Lvov and Kerensky the processes of economic disintegration went on apace; and the Bolsheviks had to face in the early years of their authority continuous civil war complicated by foreign intervention and economic blockade. There were in the country no adequate means of keeping such instruments of production as had survived the chaos in proper repair, or of making new ones; and the Russian Ishmael was in no position to acquire the needed instruments from abroad. The most that could be done was to keep the factories, mines and railways working somehow, with ever-diminishing efficiency as irreplaceable plant wore out or was destroyed, and, for the rest, to rely on the peasants, who had assumed control of the land, to go on prod11cing

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enough foodstuffs to save the population from sheer decimation by famine. The problem was made the more intractable because Russia was desperately short of knowledgeable technicians and craftsmen, of administrators of every sort, and of men of experience in the arts of government and economic organisation. As long as the civil wars lasted, what personnel there was had to attend to the tasks of the moment, and all longer-run measures of economic reconstruction had to be postponed. There was, and could be, no economic planning until the fighting was over, and the Communist leaders could pause to take stock of their sorely battered economic resources with some assurance that tl1e country was theirs to re-make after the new pattern of their hopes. Even then, the first task was to ward off sheer starvation, and long-run plans had still to wait on what was best for averting immediate collapse. In at least one field-that of electrification-Lenin began to plan the instant the war pressure was relaxed; and the choice of electrical power as the gateway to a planned economy was significant of the idea which the Bolsheviks had already in mind. Lenin's plan for the electrical development of all Russia-formulated as early as 1920-is the direct ancestor of the Five-Year Plans. But though in this field a beginning was made at once, for the rest planning had to wait, or rather to be subordinated

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famomic Activity in th( US.S.R 1928 -1