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The Pamphlet Collection of Sir Robert Stout: Volume 81

Chapter IX. — Unearned Increment and Labour

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Chapter IX.

Unearned Increment and Labour.

We must now address ourselves more closely to Labour's interest in this question of unearned increments. A careful and somewhat tedious analysis has disclosed the nature and causes of the unearned increment. We have seen how it rests on the law of diminishing return. We have seen how that law depends on the growing needs of a growing population. Our argument, so far, is confirmed by all acknowledged authorities on Political Economy. But what concern has Labour with the argument That is the vital question. Let the answer be thrown out boldly. To this law of diminishing returns is to be ascribed almost all the substantial grievances from which Labour suffers. It is a natural law, rigorous, cruel, and relentless. Because land yields less to man's effort as more is applied, therefore it demands more of the fruits of that effort. Or let us reason mathematically. The source from which wages, profits, and rent are obtained is the national output. There is no other source from which remuneration can come. The money that the labourer gets consists only in tokens whereby he can command the commodities the tokens represent. The more, then, that rent absorbs the less for wages and profits. It is a simple sum in proportion. If land gets one-third of the whole. Labour and Capital can get only two-thirds between them. If Land gets nothing, Labour and Capital will get the whole between them. In a young country Land gets, next to nothing, and Labour and Capital share the produce between them. In an old country, with dense population, Land gets a large share. Now, it has been established beyond any manner of doubt that this share of Land is an unearned one; that it does not represent an increasaing service to industry, but a decreasing capacity for such service. If land were as abundant as the air, we should pay as little for it as we do for that indispensable element of life. It thus appears that Labour and Capital are obliged to admit, as participators in the results of their exertions, a factor of production which claims remuneration only as its power of service declines. When land of good quality is abundant, as in a new colony where the soil is generously responsive to man's effort, rent does not arise. Even to-day Canada is offering farms of 160 acres absolutely free to bona fide settlers. But give the country another generation for population to spread, for highways to be made and railways to he built, and the land now free will have attracted competitors; and then, like the veriest coquette, will raise its price the more it is sought after. If it is urged that page 77 the land rises in value because it can be more profitably worked, the reply is instant; the added profitableness springs from the roads and railways, which are a product of labour. If the railway gives a rent to the land, the rent is still an increment unearned by the land—nay, it is an earning of labour not accruing to labour but to land. And, indeed, since land obtains a share of the national produce and yet earns none, it follows as the night the day it must appropriate what labour and capital have earned. There cannot be an unearned increment without an undeserved decrement. From this conclusion there is no escape; Land participates in the fruits of industry only at the expenseexpense of Labour and Capital. What Labour tabes out of the national fund it first puts in, but as Land becomes relatively scarce it is enabled to obtain a share of the fund by making Labour pay an increasing sum for the use of the land which is becoming increasingly scarce. Thus arises its power of taking out of the fund a portion of what Labour has put in.

At this point an objection presents itself. If with growing population and the concomitant relative scarcity of land larger and larger incursions are made into the earnings of labour, how comes it that the condition of labour continues to improve? No doubt labour is better off in a young colony than in the countries of Europe, but even in those countries the amelioration of labour has been going steadily forward in conjunction with rising land values. It cannot be denied that, taking the countries inhabited by white people, population is denser than it ever has been, trade is more active, the demand for land is more intense. In short, the total value of the land of the civilised world is larger than at any previous time. Yet never before has labour been so well cared for or so well paid. If rents, then, advance only at the expense of wages, we seem to have fallen into a paradox. Growing land values, according to the reasoning employed, should involve aggravated poverty of labour. But economic history testifies to the reverse. The explanation is not hard to find.

If there is a law of diminishing return, there is a counteracting law of increasing return. This latter has neutralised the former. Indeed, its operation has been more powerful; so much so, that the gains it has bestowed upon labour and capital have been greater than the losses they have sustained by reason of the increasing rents demanded for the use of land. The inroads made upon the earnings of labour by growing land values have thus escaped observation. The evil has been covered; reforming zeal that, with every successive unit of effort, the return is diminished, but in every other sphere of its activity the return is propertionally greater the greater the effort. The more of it that people want, the more commodity, only give time to the sources of supply to accommodate themselves to the enhanced demand, and the growing page break want will issue in a declined price for the commodity. The fact is, that the full advantages of the division of labour can only be secured when production is conducted on an extensive scale. This predicates the necessity of a large market. There must be a demand sufficient to take off the output. The wide, keen demand leads to an ultimate reduction of price. The cheapening of the cost of production in the arts and manufactures, by gigantic factories employing highly specialised machinery, and securing all those incalculable economies in the use of power, in diminished waste, etc., has been enormous during the past century. The price of almost every article of commerce has been reduced. Linens, cottons, woollens, cutlery have been brought within the reach of the poorest.

Between 1786 and 1876 the price of cotton fell from 38s per unit of length to 2s 6d, and in the meantime the quality improved. The fall in price has continued since under the stimulus of a steadily advancing demand. Mulhall estimated that the cost of agricultural products during the period rose 13 per cent., while that of manufactured goods fell 43 per cent.

When Britain, by the iniquitous Corn Laws, endeavoured to wring from her own soil all the produce her people needed the price of wheat rose tremendously, and with it the price of land. But when she abandoned her Corn Laws and transferred the energies of her people to manufacturing not only for herself but for the world, the price of those goods did not rise with the increased output. On the contrary they fell. The increased output of agricultural produce raised prices, the increased output of manufactured goods lowered them. Freetrade gave the British consumer a double blessing. It gave, on the one hand, cheaper food; on the other, cheaper clothing. By opening up new sources of supply of wheat, it arrested the law of diminishing return; and by turning the national industrial activities into manufactures it brought labour into a sphere where the more the production the less the price of the articles produced. It is estimated that if Lancashire could secure the monopoly of the world's market for cotton, the added economies, which the concentration of the industry would render available, would enable it not only to meet the demand, but to do so at a lower price.

Again, the march of invention has been going in the same direction. Who can estimate the accession of productivity attributable to steam? Who can foresee industry's gains in that subtle element, electricity? These are the factors which have poured wealth at the feet of the nations with the prodigality of a cornucopia. No wonder the influence of the law of diminishing return has not been consciously felt. Even in the field of agriculture, the law has been counteracted in no inconsiderable degree by improved means of cultivation, by railways and other facilities of transportation, and by a widening use of page 79 machinery for manuring, sowing, reaping, and threshing. That the law has not been in suspense, however, is seen by the high land values and rents which prevail in all progressive communities. The world's consumption of wealth cannot increase without the need of land increasing. The raw produce, which is the basis of all manufactures, must be drawn from the soil, the building of factories requires land, the housing of operatives requires land, the distribution of the commodities requires land for commercial establishments, banks, warehouses, retail stores. Productivity cannot be augmented without accentuation of the need of land. But the supply is fixed, and thus the growing need expresses itself in rising rents. Wherever population is progressive and the productive forces energetic, the value of land is rising commensurate with the rising need of it. And Labour must have suffered acutely—indeed, population must have been arrested—but for the wonders of this era of machinery, which has so amazingly lessened the cost of production. Nothing but the phenomenal strides in science, the progress of invention, the development of the aids to industry, the capitalistic organisation of production, has saved Europe from being covered with destitution by the relentless operation of this law of diminishing return. These have opposed a countervailing force to the increased resistance which Nature offers to raising increased amounts of raw produce. Indeed, the collective efficiency of civilised peoples has developed more than in proportion to their numbers. Accumulated wealth grows faster than population. That tendency (which filled Malthus with pessimism) of population to press continually upon the means of subsistence has been met by a stronger tendency acting in the contrary direction. It is this which accounts for the forward movement" of Labour and the steady improvement in its condition. But that Labour is better off to-day than ever before is not due to any slackening of the landlord's exactions for the use of his land, but to the immeasurably increased fruitfulness of labour. Two opposite tendencies flow from advancing population. In the one case, labour becomes more efficient and productive through the division of employment the specialisation of skill, the development of correlated branches of industries and the innumerable economics which large scale production effects. In the other case, the demand for land is accentuated, the scarcity of it emphasised, the value of it augmented, and the toll which it levies upon the fruits of industry increased the first tendency is constantly enriching Labour; the second is constantly impoverishing it. The result is that amid unexampled profusion of riches, Labour is still poor.

But why? That is the question. Labour apparently has not received its fair share of the increased fruitfulness. It is no answer to the charge of the essential greediness of land, which raises its price with deepening necessity, to say that some betterment is noticeable in the condition of Labour. Has Labour re- page 80 ceived a return commensurate with its contribution to this augmented national output? Wealth, estimated at per head i population, has everywhere increased much more than the wealth per head of the working classes. Where has the surplus gone? Capital has been able to secure a large return, but then it is quite arguable that Capital has earned it, since, but for the invaluable services it has rendered, production could never have reached the scale on which it is now carried on. But more of that anon. The point upon which emphasis must now be laid is that Land has obtained the lion's share. That factor of production which is a gift of Nature has made larger and larger drafts upon this labour-created fund. A tremendous proportion of the increased fruitfulness has passed in the shape of unearned increment to land. The factor of production, which can only command remuneration at all by becoming less fruitful, has secured the greatest benefit from the increased fruitfulness of the other factors of production. Its progressive disservice has enabled it to levy tribute upon the progressive service of the others. So Land, growing more parsimonious with advancing civilisation, appropriates the major portion of the benefits. Thus Labour is deprived of the reward of its growing productiveness. The private wealth per head steadily grows in all countries. Mr Hayter estimates that in Victoria the growth was from £185 in 1872 to £261 in 1902-yet the condition of the working class has not improved because of the concomitant advance in rents. Similar progress of wealth is shown in New Zealand, but land values have increased at the rate of £4,000,000 a year, with the result that Mr Tregear, the Chief Secretary to the Government Labour Department, declares that the condition of Labour to-day is worse than it was ten or fifteen years ago. Growing productiveness has been accompanied with growing rapacity of landlordism. This was recognised by Hugh Latimer as far back as the sixteenth century:—

Land which went heretofore for £20 or £40 a year now is let for £50 or £100. My father was a yeoman, and had no lands of his own; only, he had a farm at a rent £3 or £4 by the year at the uttermost, and thereupon he tilled as much as kept half a dozen men. He had walk for one hundred sheep and my mother milked thirty kine; he was able and did find the King a harness with himself and his horse when he came to the place that he should receive the King's wages. He kept me to school; he married my sisters with five pounds apiece. He kept hospitality for his neighbours, and some alms he gave to the poor. And all this he did of the same farm where he that now hath it payeth 16 pounds rent or more (instead of 3 or 4 pounds by the year at the uttermost) by the year, and is not able to do anything for his Prince, for himself, nor for his childern, nor to give a cup of drink to the poor.

During 1871 and 1886 the ground rental of London increased by £6,000,000, the total rental being £15,000,000. This was the page 81 "annual payment for permission merely to occupy the swampy marsh by the Thames which London labour makes so productive." Speaking in the Memorial Hall, July 29th, 1887. Mr W. E. Gladstone alluded to the Thames Embankment and asked: "At whose expense was that great permanent and stable improvement made? Instead of being made, as it should have been, at the expense of the permanent proprietary interests, it was charged every shilling of it upon occupants—that is to say, mainly either upon the wage, of the labouring man, in fuel necessary for his family, or upon the trade and industry and enterprise which belong of necessity to a vast metropolis like this." And the burden of this growing value upon wages has been growing heavier ever since. Berlin for the past thirty years has trebled its ground rents. For a quarter of a century and more the landlords of Birmingham have been receiving an increase of from £8,000 to £9 000 a year in ground rents. Labour has paid it. In New Zealand private wealth and public wealth, in the shape of railways, etc., has been growing apace. In 1891 the private wealth per head was estimated in the New Zealand Official Year Book at £230 per head. By steady increments it advanced to £280 in 1904. A new system of calculation was adopted on this last year, which renders the estimate lower than it otherwise would have been. Under the old system, it would have been about £300. And yet at the same time as this increase was chronicled, Mr Tregear published and adopted Mr Coghlan's statistics showing that the cost of living during the time that the wealth per head had been growing had increased 30 per cent., whilst wages had increased only 8 per cent. Mr Tregear ascribed the increase in the cost of living mainly to the amazing growth of land values, necessitating an ever-increasing proportion of wages to be spent on rent.

It would appear, then, that although the wealth per head in New Zealand has increased during fourteen years, yet Labour is not so well off as formerly. The advance in wages has been more than counterbalanced by the increasing portion absorbed by rent and by the enhanced price of such necessaries of life as meat and butter. But how comes it that the necessaries of life have increased in price? It arises from the fact that they are the direct product of the land. The expansion of foreign trade has increased the demand for these products, and, therefore of the land. This increased demand for land has been followed as always, by increased price of land. As has already been observed, dairy land in Taranaki, which fifteen years ago was only worth a few pounds an acre, now finds purchasers at £40 an acre. So that the increased price of dairy produce measures a further encroachment of land upon the products of industry. It is the resort to more inferior soils, and the more intensive cultivation, consequent upon the increased demand of growing local markets and expanding foreign markets, which has raised the price of such commodities as butter and meat to the worker. It is the page 82 pressure of a growing population which has raised the value of residential land and increased his house rent. What effect the Arbitration Court, by raising wages, has had upon the cost of living has previously been noticed. It is negligible in comparison with the effect of rising land values.

We seen, then, how Labour is spoiled by an increment to land that increases as the service of land in production decreases. So Labour is robbed of its earnings.

But this does not represent the full penalty which advancing land values impose upon Labour. They aggravate the unemployed problem. Land is a condition precedent of the employment of labour. Industry consists in the extraction of raw produce from the soil and in working it up into forms filled for the satisfaction of human desires. The starting point of all industrial activity is land. It follows, therefore, that everything which impedes or sets any hindrance to the use of land hampers industry. Labour could not lack employment, able-bodied poverty could not exist, were there abundance of fertile land to be had free of charge. Were Labour enabled to devote its unemployed energies directly to the soil without impediment, starvation were a calamity unknown, apart from catastrophes of Nature, such as droughts. Any man capable of work can procure a living if he have a patch of fruitful soil into which to throw his seed. So in young countries, where the use of land can be had for a trifle, there is no abject poverty. Land is practically free and accessible; there is no obstacle" to the productive energies 0: Labour. Land is Labour's opportunity: and where the opportunity is open to all, there is no undeserved poverty. But when land is scarce relative to need, and what there is of it is high priced, when a large payment is demanded before Labour is permitted to employ its energies thereon, or still more when land is made artificially scarce by speculators locking it up in anticipation of accession of value, or by proud aristocrats fencing off vast areas for deer parks, then Labour loses the opportunity for the employment of its unemployed energies. Were the relation of the accessibility of land to the prosperity of Labour generally understood, the public conscience would hold as criminal the artifical withholding of land from use. Thus rising land values rob unemployed labour of a large portion of its earnings, and by making land inaccessible to the poor, prevent unemployed labour from sustaining itself.

But we have not yet measured the weight of the burden of rising land values upon industry. Wherever there is rising land values there is speculation. Wherever there is speculation there is a degree of productiveness short of that possible. Speculation or trafficking in land values is a grave evil incident to private property in the earth's surface. In all communities riding on the advancing tide of prosperity, and especially in young countries, men page 83 are to be found whose occupation is not use or cultivate land, but to gain wealth by buying and selling calculated upon movement of value. The bane of the speculator's influence lies in the artificial inflation which his dealings impart to values. The value of land rises naturally by an inexorable law as population grows and multiplies its needs; but speculation gives an unnatural and inordinate accession of value. It is enabled to do this by the extent to which it causes the locking up of land. Land is for use but speculators do not want it for that purpose. The history of every one of the British colonies abounds in instances of urban and rural land withheld from use and cultivation, and held only in anticipation of the rise in value which progress will give. Now, to lock up land is to diminish the supply for the satisfaction of the needs of industry. Rent is the outcome of the equation of, supply of, and demand for land. Were land of good quality illimitable in quantity, there could be no rent, or land could have no value. Land participates in the products of industry only because its supply is limited by Nature, and cannot increase with increasing need of it Speculation involves the artificial limitation of the supply. Thus the value and rent of all the land in use are increased. The unearned increment is augmented. The earnings of Labour arc subjected to further encroachments. But the unearned increment only grows as the operation of the law of diminishing return is intensified. It means that lands are being resorted to which are less profitable to work, or that land already in use, by being more intensively, is less profitably, worked. In abort, the locking up of good land means that Labour must employ itself less productively on other lands. Thus the productiveness of Labour is diminished. The fruits of industry, from which alone wages, rent, and interest can be paid, are lessened in quantity. Thus speculation curtails the productiveness of a community, and at the same time secures for land a larger share of the diminished produce, in the form of rent.

The conclusions of the argument may now be concisely set forth. By reason of the supply of land being incapable of expansion, and by reason of the demand for land being subject to progressive expansion, a threefold burden is placed upon the back of Labour. As the demand presses upon the supply, land appropriates more and more of the products of labour. Increasing rents are an unearned increment, since they measure, not the growing bounty of Nature, but its growing niggardliness. In addition to the burden of an unearned increment growing values and rent mean growing inaccessibility of land to the poor and those not possessed of capital. Thus the unemployed are denied the outlet for their unbespoke energies which the existence of free land would