Nature of Society   by   Leon Maclaren

Chapter V

R e n t  a n d  W a g e s

The purpose of this chapter is to establish what share of the wealth produced from day to day goes to those who control the land and to those who give the work. In other words, what portions go in rent and wages.

From now on, a man who controls land will be called a "landowner", one who works a "labourer" and one who controls capital a "capitalist". These expressions will not necessarily refer to different people. A smallholder may well be at one and the same time landowner, labourer and capitalist. As has been seen the shareholders of a manufacturing business may well be both landowners and capitalists, and even labourers. These terms refer then not to different men, but to three distinct positions which any man may hold in relation to the production of wealth. This is important: our object is not to discover how much wealth men receive, for this is a matter for the statistician, but to ascertain by what powers they are enabled to obtain their wealth.

Now land and labour are two of the factors in the production of wealth and, as a result, the landowners and labourers are enabled to command a share of the wealth produced. Others who play no part in industry may extract wealth from it but they may only do so in one of two ways. Firstly they may be in a position to make some charge upon a particular industry, as by making an excessive charge for some of its raw materials. The result of this is to reduce the amount of wealth available in the particular industry for distribution in rent and wages but, as will be seen later, if the amount is not sufficient to pay rent and wages at the market rate, the industry will close down. Obviously if the industry will not yield as much rent as the landlord could get by another use of his land in most cases he will withhold the land. If the labourers do not receive as much in wages as they could obtain elsewhere they will probably leave. Secondly, men not concerned in the industry may extract wealth from the landowner or labourer as do the tax-gatherer and the money-lender, but these people do not affect the proportion in which the wealth produced is distributed between the principal claimants. For the time being, therefore, such incursions will be disregarded and will be dealt with when, in their proper order, they come up for examination.

At this stage of the enquiry we are not concerned with the rent or wages in any particular industry, but with the general level throughout society, and how, under changing conditions, rent and wages vary in relation to one another.

Now it is apparent that if the share taken by the landowner in rent out of the wealth distributable is increased, then, consequently, the share which will go in wages must be correspondingly reduced. Thus if rent increases from 30 to 40% of the wealth available for rent and wages, the share for wages must be reduced from 70 to 60%. Therefore, if it is discovered what proportion of the available wealth goes in rent and how that proportion fluctuates, then the proportion going in wages will be automatically determined. This seems obvious enough but it is another of the strange characteristics of the theories currently advanced on these subjects that they do not add up. The very first test which may be put to any theory which seeks to explain the distribution of wealth is that the explanations of rent and wages must harmonize with each other. They must give a result which may be expressed in a simple equation that wealth available for distribution in rent and wages equals rent plus wages.

THE NATURAL LAW OF RENT

By the word "rent" is meant the wealth which a man obtains by his control of land. Clearly, therefore, rent cannot arise unless control of land by itself enables a man to obtain part of the wealth produced. In a community of one this would be impossible. One man alone could not obtain any wealth from the control of land. The only way he could live would be by working and all he obtained would be the fruits of his own labour. Therefore, there can be no rent until there is a community.

Again, even where there are a number of people living and working together, it does not necessarily follow that ownership of land enables any one of them to obtain a share of the wealth produced. If land equally good to that which any one of them holds is to be had for nothing, then no one of them could obtain any advantages over the others from the control of the land. In such conditions no matter how productive the land, there would be no rent. Clearly, therefore, the rent of land does not arise from its productiveness.

When, however, all the most productive land is taken and only less productive land is available free, a new condition arises. Under these new circumstances a newcomer who settles on the best free land will be at a disadvantage as against those on better land. His work will bring him in less than the work of those who have the better plots. The advantage which they have over him will come to them simply because they hold the better land. This advantage will be a benefit they receive from the control of land and will be rent. In the early days of the colonization of America, nothing drew crowds of men into new and uncharted country more quickly than the rumour that gold was to be found there. The first prospector to discover this alluring metal would naturally look to find the deposits where gold was most plentiful and most easily to be obtained. Others would follow him until all the best deposits were being worked. Those who came later had to be content with less profitable parts. Under these circumstances the holder of a better stake would not freely give place to a man who held a poorer one unless it was made worth his while. He would expect part of the yield in return for giving possession of the land - he would expect rent. The late-comer might be and in fact frequently was very pleased to enter into such an arrangement, but there would be a limit beyond which he would not go. If the sum demanded in rent was so large as to reduce the amount left for him to less than that which he could have obtained on a free plot, obviously he would not pay it. The rent, therefore, would be limited to the difference in the productive capacity between the old claim and the best one to be had for nothing.

To put this another way: the prospector who worked the better land would gain an advantage over those on poorer land which would be in no way due to his skill or labour. If, for any reason, he had to move on to free land he would be poorer than before. In short the difference between the wealth which he obtained on his own claim and that which he could have obtained on the best plot to be had for nothing would be rent, the remainder would be wages. So soon, therefore, as a community grows so as to absorb all the best land available and begins to spread onto inferior soil, a proportion of the wealth produced on the better land becomes rent. The poorer the land onto which the community spreads the greater the proportion of wealth produced on the better land will be rent and, as a result, the smaller the proportion taken in wages.

This does not mean that the amount of wealth going to the labourer would necessarily be reduced. It is a common observation that as a community grows the amount of wealth produced per head of the population on the best land and the poorest increases substantially.

The result is that even after subtracting from the wealth produced the increasing proportion which goes in rent, the amount of wealth left for wages may not be reduced, although the proportion taken falls. So far these facts are clear - unless there is a community there cannot be rent; even if there is a community there will still be no rent if land as good as any other is to be had for nothing. Only when all the best land is taken and men have to work upon inferior land does rent arise. The measure of rent will vary from plot to plot according to the advantage which the owner obtains from his particular part, but upon each plot the rent will be the difference between the wealth produced upon it by labour and what that labour could produce upon the best land open to use free of charge.

It will be beneficial at this point to reduce what has gone so far to clear and simple scientific expressions, so that the way may be open to observe what happens to wages as the proportion of wealth taken in rent increases, and further to observe what is the result when all the land available in a community is enclosed.

The chemist has a great advantage over the economist in dealing with his subject, for he can very often take the object of his study into a laboratory and observe and measure its reactions to particular conditions by creating an artificial state from which all other influences are excluded. This the economist cannot do. It is possible, however, to create laboratory conditions in the imagination and, by careful observation and reasoning, to distinguish the effects of these conditions upon the subject of the enquiry.

When the scientist wishes to measure the relation between the volume of a gas and the pressure put upon it, he creates an artificial condition where the temperature of the gas remains constant. If he did not do this the variation in the volume would be affected by both temperature and pressure and it would be impossible for him to ascertain by observation how much of the change in volume was created by temperature and how much by pressure. The aim here is to establish the relation between the wealth produced on any piece of land and the land itself, watching how the wealth produced changes when the quality of the land is changed. In order to do this it is necessary for the amount and quality of labour used in every case to be constant.

Imagine then a fertile island rich in natural resources. Let men come upon it in succession and let each man bring and use an exactly equal amount of labour. To assist in observing what must happen under such conditions diagrams will be used. The island will be represented by a straight line bounded by waving lines to represent the sea, thus:


Fig.1

On each plot as it is worked a funnel will be raised to represent graphically the amount of wealth produced by each comer to this island with his standardised labour, thus:


Fig.2

The first settler, who will be called "A", comes upon the island and looks for the best land. For convenience sake suppose the best plot to be on the left-hand side of the island. After he has applied his constant amount of labour to this plot he will produce wealth which may be represented by a funnel measuring 100 thus:


Fig.3

As "A" is the only settler, for reasons that have been reviewed, none of the wealth produced by him will be rent. It must, therefore, be wages and has, for this reason, been marked in the diagram as W.

Then comes the second settler "B". He finds the best land taken by "A" and is compelled, therefore, to find the next best site. After he has used the same amount of labour as his neighbour the wealth which he will produce must be less than that produced by "A" and is shown in the next diagram by a shorter funnel marked 90.


Fig.4

None of the wealth produced by "B" will be rent, it will be entirely wages. Now, as may be observed, though "A" and "B" are, for the purpose of this enquiry, using the same amount of labour, "B's" return is smaller than "A's" by 10. This difference arises from the fact that "B" occupies poorer land. Clearly, if "A" changed places with "B" then he would get 90 and "B" 100, so that the extra 10 comes to him by reason of his control of land. This fact is represented in the next diagram by showing wages on both plots at 90 and rent on "A's" plot as 10, thus:


Fig.5

When "C", the next settler, comes to look for land to work, he has to be satisfied with yet inferior land. In his turn though he works with equal labour, his produce must be less than "A's" and "B's", and will be represented by 80. In this case the benefit of 10 which accrues to "B" and of 20 which accrues to "A" over and above what "C" obtains is due in each case to the fact that "A" and "B" have control of superior land, and is rent. This new condition is represented thus:


Fig.6

In short the rent on sites "A" and "B" is equal to the difference between the produce of labour on each site respectively and the produce of the same amount of labour on site "C". In each case the remaining 80 is wages. A simple observation will show that this is so.

Let another settler, "D", come upon the island and suppose "A" says to him, "Come and work for me upon my land." The very natural question "D" would ask would be, "How much will you pay me?" Now supposing that "D" could obtain for himself on the best free land wealth represented by 70, then it is clear he would not work for "A" unless "A" offered him at least 70. This would mean that the level of wages in this little community would be based upon 70. In other words the wages which a man may command in such circumstances are those which he could obtain with his labour upon the best land open to use. Vacant land freely to be had gives "D" a bargaining power with anyone who wishes to employ him. All that a landowner can obtain is what is left after wages are paid.

This may be represented on the diagram as follows:


Fig.7

Thus it is to be seen that the share of wealth which goes in rent on the one hand and in wages on the other is determined by the amount of wealth that labour may produce upon the best land open to use free of charge. As population increases and production extends on to inferior land the proportion of wealth going in rent on the better land will increase and consequently the proportion going in wages will decrease. As has been stated before, this does not necessarily mean that the amount of wealth going in wages will decrease. For the purposes of this argument it has been assumed that every man who comes upon the land uses an equal amount of labour. In fact with a growing population a new variant comes into play which will be discussed in the next chapter. As the community grows the productiveness of labour increases very greatly and it may well be that as a result, the amount of wealth produced on the inferior land is greater than was produced when the community was smaller and less land was used. Whether or not this be the case, however, the proportion of wealth going in rent on the better plots will steadily increase as population spreads on to inferior land.

The best land to be had free of charge is known to economists as the margin of production or sometimes as the margin of cultivation. This is in many ways an unfortunate phrase as it suggests barren and unfertile soil. In truth, however, the margin of cultivation is the best land to be had for nothing. Thus it may be said that rent is determined by the difference between the product of labour on any piece of land over and above what the same labour and capital could produce at the margin of production.

Throughout the argument so far it has been constantly assumed that there is plenty of good land to be had free. This gives the labourer an alternative to seeking employment with a master. Obviously this is of the greatest benefit for it fixes a minimum below which the labourer will normally refuse to work for another. On the other hand, this alternative source of employment not merely sets a minimum to the proportion of wealth taken by labour but it sets a maximum to the proportion of wealth which may be obtained in rent.

This may be summarized as follows:

Where land is free, rent is determined by the amount by which the produce of labour on the land in question exceeds the produce of the same labour on the best land open to use.

Where, however, all land is enclosed a wholly different situation arises. It is a melancholy historical fact that in each succeeding civilization a point has been reached at which a number of men retire from active toil in the production of wealth to live upon their rent. Not unnaturally having an abundance of leisure such men will often turn their attention to the government of others. For their part, the rest are too often content to let the leisured few look after this troublesome matter. When this happens, inevitably the few use their authority and power to enclose the land and take more and more of it until the whole of it has fallen under their control. Many and interesting forces operate towards this end when civilization reaches a certain point, but this enquiry is not concerned at this stage with these matters. Sufficient it is to observe that it happens, and then to see what consequences flow from it.

To return to the diagrams, suppose that "A" and "B" enclose all the land, and suppose "C", "D" and "E" are driven off. The new condition may be represented thus:


Fig.8

In these circumstances if "A" asks "C", "D" and "E" if one of them will come and work upon his land the question of wages arises. It is interesting to observe that it will not be "C", "D" or "E" asking "How much will you pay me?" but it will be "A" asking each of them in turn "How much do you want?" Assuming, as has been done, that each of them works with equal skill, the one who will obtain the employment will be the one who asks least. Thus, in this instance, wages will be determined by the least a man of equal ability will take for the work. It is notorious that under such conditions wages must fall very low. The men no longer have an alternative source of employment but are compelled to seek it with a master. Each man answering the question "How much do you want?" will know that if in answering he asks too much, he will not gain employment. Instinctively he will write down his own value. He who writes it down most will obtain the employment, and will determine the rate of wages. Let this new condition be represented on the diagram by a wages line which will be called 20, thus:


Fig.9

Now all that remains over and above wages, that is 80 on "A's" site and 70 on "B's", will be rent.

There will, however, be a limit beyond which rent cannot rise. This will be determined by the amount below which labourers will not work. This will vary according to conditions. If competition for work between men grows more severe, the level of wages will drop.

Tradition and education, too, will affect matters. In countries where the standard of living has long been low and the people are ignorant, the level of wages will fall very low. Where tradition and education are of a higher nature, men will refuse to work for so little. Whatever the conditions, however, the least the workman will accept for wages will determine the highest point to which rent can rise.

In short where all land is enclosed:

Rent will be determined by the difference between the amount of wealth produced on the land in question and the least which labourers will accept in wages.

THE NATURAL LAW OF WAGES

In settling the law of rent, the law of wages has been automatically settled. Where land is free, wages will be determined by what a man can obtain working for himself on the best land open to use. This does not mean that wages are determined by what a man could obtain working singly with no capital resources in a modern society. Wages would be determined by what a man could obtain in a fully equipped industry, either alone or in co-operation with his fellows in accordance with what the industry demanded. There need be no doubt that, in a free society and if the laws did not forbid it, a man who so wished could obtain the capital he required for his industry on the payment of interest, and the wages he would obtain on free land would be the whole product of his industry out of which, of course, he would have to pay interest. In a society, then, where good natural resources are available to labour free, the product of man's industry on the free land must be good and wages must be high. As has already been stated, in such conditions it would not be long before the labourer acquired ownership of his own capital and was under no constraint to borrow or acquire it.

Where land is all enclosed by a few members of the community, wages are then determined by the least an unemployed man will accept for work. Where, as during industrial depressions, unemployment rises sharply, competition for work will intensify and wages will fall. During a trade boom, where men are absorbed back into industry, the competition for work will be eased and wages will rise; but as a man who has nothing but his labour is dependent on employment with others for his very existence, then, where all land is enclosed, wages will fluctuate around a very low level. They cannot, of course, drop lower than the minimum return a man will accept in order to live, and what men will accept as a minimum will differ in different countries according to the traditions and education of the people and between different generations, according to the habits and education of the time.

To return to our example of the gold prospector; so long as there are good gold deposits open to the newcomer he will not accept in wages from a master less than he can obtain from one of these free deposits. If he is an experienced and skilful workman he will obtain more than if he were less skilled and will be able to demand more wages from an employer. Where, however, a few men stake out the whole of the gold deposits and claim them as their own, a newcomer will find nothing on which he can work except by permission of the owners. He must either accept their terms or find his way back to civilization. In such circumstances, as actually happened in the goldfields, he will be reduced to working for a very poor return and the whole of the benefit of his work, over and above this low wage, will go to the owners of the deposits. Thus by an enclosure of the land, wages will be driven down and rent will rise to absorb the loss to labour. The workman will have no means to build up capital, which will be supplied by the owners on terms. They will be landowners and money-lenders and will absorb both rent and interest, but the power that enables them to obtain and hold this position will be their control of the land.

WAGES AND CAPITAL

Before wealth can be used to produce more wealth or, in other words, before wealth can be used as capital, it must first have been produced. Moreover, as it is the product of human industry, of labour applied to land in order to gratify human desire, someone must have a claim to it. The primary claimants will be land owners and labourers. Men will only use capital, however, in their capacity as labourers, in the act of producing wealth. In a society where wages take so small a proportion of the wealth produced that the labourers receive no more in wages than enough to maintain the minimum standard of life which they demand, the labourers will rarely be willing, even if they are able, to provide their own capital.

For labour to be efficient, however, labourers must be equipped with appropriate buildings, tools and stock. Indeed in order to supply their own minimum requirements in wages, it may be necessary for them to use a considerable amount of capital. Where land is all enclosed and wages are determined, not by what a man could earn as his own master on good productive land, but by the least which he is willing to accept, wages must drop to that low level at which most people will not supply their own capital. In these circumstances, either people must work with nothing but the most rudimentary tools and earn but little in terms of wealth, or someone else will have to supply the capital. In short, if capital is not drawn primarily from wages, then it can only be drawn primarily from rent.

Now whereas men generally will be glad to acquire buildings, tools and stock to facilitate and improve their own work, if they can afford them, they will not, as a rule, be inclined to provide them for someone else. Indeed they probably would not know what capital was required in the other man's trade. Where land is all enclosed, therefore, a situation arises where most members of the community, relying on their labour for their livelihood, have not the means to provide more than the simplest and cheapest equipment for their work, while the surplus over and above their minimum requirements for living goes in rent to landowners who, for the most part, will have neither the desire nor the knowledge to provide the equipment. This situation may result in a condition of society where industry is arduously sustained at a low level of productivity by the muscle of the labourers, little assisted by tools of art. On the other hand, it presents a magnificent opportunity to the money-lender and the adventurous and volatile captain of industry.

If a man cannot supply his own capital out of his own wealth, he may borrow a claim on wealth with which to acquire it. If he is willing to pay interest and can inspire sufficient confidence in the owners, he may succeed in obtaining loans. For the same reason, however, which cause labourers generally not to provide their own capital, labourers will not pay interest out of wages, and where interest is not drawn primarily from wages, it must be drawn primarily from rent.

Plainly, other things being equal, where labourers are fully equipped with capital, their industry will be more productive than where equipment is poor. The result is that though some of the rent will have to be paid in interest on loans raised to equip an undertaking, the landowner may still receive more in rent than he would obtain from a poorly equipped tenant. In the situation, then, where claims to wealth have to be borrowed in order to provide full and modern equipment, the rent to be obtained by a landlord who does not use the land himself but lets it to another, will fall short of the full rent by the amount which has to be paid in interest in order to acquire the capital. If more is demanded, then either the business will not be launched or will very soon fail.

This limitation on the rent to be obtained where a landowner lets out land to another for use in industry, is the fact that has led economists to speak of a third avenue of the distribution of wealth in addition to rent and wages, and to call it "interest on capital". As has been seen, however, this error arises from confusing the power, which enables an owner of a claim to wealth to exact interest from a borrower, with the use to which only some of the loans are put - the acquisition of capital. For example: this same limitation on the amount of the rent that may be obtained on a letting sets a parallel limit on the selling price of land; those wishing to launch an undertaking may therefore not merely borrow funds to equip the industry but may also borrow funds to buy out the landowner and thus obtain the whole of the rent for themselves; plainly in this case, the interest on the loan is drawn from rent, and cannot be a separate avenue of distribution.

Though the rent to be obtained on a letting will thus fall short of the full rent, the demands of landowners will press rent towards its maximum. In order to live, men must have access to land, and where land is all enclosed there will be a struggle for access to it, in which the highest bidder will win. The fully equipped undertaking will generally be in a position to outbid the others so that rent to be obtained on lettings will tend towards that payable by a fully equipped tenant. In other words, in order to yield the rents demanded, and so gain access to land, labourers will need to be fully armed with capital, and this equipment will vary more with their borrowing powers than with their skill and enterprise. Moreover, when those launching an undertaking have sufficient funds to buy out the landowner, they will thereafter profit from any increases in rent over and above the amount payable in interest, and will be thus supplied with funds for further expansion, which will not be available to tenants on short leases.

The negotiating of loans and land purchases calls for skill and aptitude of a particular kind, with which only certain individuals are endowed. A capacity to understand accounts, law and real estate dealings; a gift for inspiring confidence in others and inducing them to part with money; an eye for the commercial value of other men's work and skill; a capacity to select assistants and draw the best from them: these are the kind of qualities required. One so endowed may raise loans, employ labourers and equip industries, and, if his ventures are successful, may multiply his borrowings and his employees, and by these means grow to great power. Such qualities would be valuable in any community, but in such a one as is under consideration, they assume an importance out of all proportion to that of others.

No matter how brilliant and conscientious others may be, if their calling demands expensive equipment and they have not command of wealth with which to acquire it, they will, perforce, work as employees. Theirs will be the talent and knowledge which will be employed by the financier to manage and sustain the industries under his control. He may begin as a banker, take over the management of a large electrical concern, move on to manage a giant steel industry; while the true bankers, electricians and metallurgists work for him. Indeed they have little choice.

Men who undertake this bringing together of funds and labour need imagination, courage and a capacity for hard work, but no more than is required of many other skilful occupations. Against the few who succeed many will fail, but because of their importance in a community where those who have imagination, skill and courage frequently do not have the means to equip themselves for their particular work, those who do succeed will be paid like successful film stars. Their importance has led economists to dignify them by the special title of "entrepreneur" (which a wit defined as a person who risks one man's money to exploit another man's labour) and to entitle their remuneration as wages of "superintendence". Their very function, however, proclaims the nature of the conditions which give them their pre-eminence. Their task is to bring together the labourers and the funds required to equip the labourers, an operation which would, of course, be unnecessary if wages were sufficient to give the labourers the command of the wealth with which they are equipped. In a community where wages are depressed to the least labourers are willing to accept, but where labourers are not content to work with primitive or crude instruments, then the financier is bound to rank high in importance and his ideas and way of life will be one of the formative influences in thought and practice. He will be, not merely the captain of industry, but the adviser of governments and the patron of architecture, literature, music, painting and sculpture. This condition of society, however, will be a secondary manifestation flowing from deeper causes. Debt, though it binds the greater part of the community to the moneylenders, will be a brittle bond. Those who lend their claims to wealth will seek security against the debtor's failure to honour his promise to repay. Many devices will be used: the fictitious hiring under the so-called hire-purchase agreement; the pawn, lien, mortgage, debenture, and government security. Of all these, the safest, the "gilt-edged" securities will be those that enable the creditor, on the failure of the debtor, to seize land and collect the rent direct for himself, as is the case with mortgages and fixed debentures, or those securities issued by the more stable governments and backed by taxation. Those secured against articles of wealth can never be so good. Land endures, and so long as mankind survives, human beings will need access to it. Wealth decays and needs labour to maintain and replace it.

Interest is the result of dependence produced by poverty. The extension of "hire-purchase" and the growth of building societies are clear evidence of this dependence. Nearly all large industrial undertakings are heavily in debt. Accountants, who are practical people and are little concerned with economic theory except for the purpose of passing their examinations, regularly enter in companies' books the debt due from the company to the shareholders, debenture holders and the like. This debt, they call the "capital" of the company, and so this abused word completes the full circle from meaning the head of cattle which a man owned, to the debt owed by a trading concern.

It is only by keeping the elemental facts of economic life clearly in mind that a clear course may be steered through the confusion into which economic thought has fallen. Every community which has ever existed has been based on land and been dependent on labour directed by human desire. The primary claims on all wealth produced in the community have been rent and wages. All other claims are secondary. Yet as a man cannot live without wealth, if his claim to wealth is so small that he will try to borrow, even though it reduces him to a dependent position. How these claims to wealth are distributed, whether they foster independence or encourage dependence, will be determined by the structure of the community.

INTEREST

This is not the place to discuss interest fully as many matters must be discussed before it can be fully understood. Having regard to its importance, however, certain general observations may be helpful at this stage.

Before the control of wealth can enable a man to exact a claim to wealth from another in return for a loan, there must be people willing to pay him for its use. While there are men willing to borrow, the most that interest can take will be the most that borrowers are willing to pay. The least will be the least that the lenders will take. Between these two points, the highest and the lowest, the lender will seek to get as much as possible and the borrower will seek to pay as little as possible.

Suppose now the least at which men in general are willing to lend is represented by the figure 2 and that the interest in fact being paid drops to 1, men in general will not be willing to lend and the result must be that interest will rise again to 2. On the other hand, should interest increase to 3, the lending of claims to wealth will at once be considered a very profitable business and the amount which lenders will seek to invest will rapidly increase and will continue to increase until interest again drops to 2. In other words, the amount of wealth going in interest will tend always towards the least at which men are willing to lend.

Men will be encouraged to acquire capital by the increase in productivity or ease of labour which they expect to gain by using it. If they have to borrow in order to acquire it, they will set the interest payable on the loan against the anticipated benefit from the use of capital. Any upward trend in interest must operate to discourage borrowing. On the other hand, the same conditions, which compel men generally to borrow in order to acquire capital, will greatly swell the quantity of claims to wealth which the owners seek to lend. Where land is all enclosed, not merely will wages tend to the least which labourers are willing to accept, but the control of surplus wealth over and above wages will tend to fall into few hands. Those wealthy persons and companies who wield this control will be anxious to lend their surplus funds. In addition the poverty attendant on low wages and the fear which it engenders, will drive the wage earners to scrape and save against the accidents of life and the passage of years, and they will be only too glad to lend their little savings to add interest to them. These sums, trifling in themselves, add up to a considerable total, sometimes about 20% of the funds on loan. So while those engaged in industry will be sensitive to increases in interest, those wishing to lend will be sensitive to variations in the quantity of borrowing, and both attitudes will help to hold interest rates down. There will be fluctuations, of course, but the general tendency will be for interest to tend to the least which lenders are willing to accept.

RENT, WAGES AND INTEREST

The conclusions so far reached may be summarized as follows. Where land is free so that any man who so wishes may acquire a plot for himself, wages will be determined by what a man may obtain working for himself, either singly or in association with others as he chooses, on the best land to use free of rent. What additional value his industry may produce on better land will be rent. Under such conditions wages will be high, much more than sufficient to meet minimum demands, so that the labourers will be able to equip themselves with capital. Consequently, borrowing will be rare. Unless people are under pressure of circumstances, they do not chose to be in debt. Quite apart from the expense of it, a debtor is never quite master in his house: everything he has is under the shadow of the debt, and if misfortune should befall him, may be taken by his creditor in satisfaction of it. Where land is all enclosed, wages will be reduced to the least the labourer is willing to accept. Wages under such conditions will not suffice to equip a labourer with more than the rudest instruments. This may result in wholesale borrowing in order to provide the equipment. This borrowing will be done by relatively few people, who, being able to provide modern equipment will tend to drive out the independent proprietors who suffer from lack of capital in their undertakings, and to employ labourers in ever increasing numbers. They will do this, however, as debtors, as agents for the money-lenders whose servants they must be. The wealth made available by the lenders will be drawn for the main part, primarily from rent, and the interest on the loans will also generally be drawn primarily from rent. As a result the rent to be obtained by a landowner who does not use the land himself will be reduced by the amount required to pay interest on loans raised to equip the tenant's undertaking. However, the general struggle for access to land will enable the landowner to press his claims, and to reduce the amount of rent taken in interest to the least the lenders will accept. Moreover this downward pressure will be assisted by the anxiety of people to lend in order to add interest to their claims on wealth. Interest will not always be drawn primarily from rent. It will be drawn from the claims on wealth which the debtor possesses. Where wages are very low, however, it is plain that there will not be much margin in them for interest, and interest payments by individual labourers must be relatively small. The great body of borrowing for industrial purposes will consequently have to be paid for out of rent. For the purposes of this chapter it was assumed that every man worked with equal skill and for the same period. In fact, of course, this does not happen; each man is different from his neighbour and some will be more skilful at some things and others more skilful at other things. Wages will vary between different types of work. Broadly speaking, those whose work requires a more expensive training and a higher skill will obtain a higher wage for, otherwise, it would not be worth a man's while to undergo the training or acquire the skill necessary.

There are other elements that enter into these variations of wages, but I shall content myself here with observing that they all bear a relation to the basic wage of the community which is that received by the poorest paid labourer. If that increases, wages throughout society will sooner or later increase as well. If that drops, the others will follow suit.

In modern society, where the poverty of the masses begets ignorance and, too often, demoralization, the differences in skill between men will be very marked and the differences in wages consequently great. Were matters otherwise and wealth evenly distributed throughout society there would be no doubt that the differences between men's abilities would not be great. Where men are given an equal chance, there is rarely any great difference in their ability. Some will be better at some things than their fellows, but worse at others. There will be differences of course, but they will probably be no more than the differences in height, which in the ordinary man is seldom more than an inch or two in six feet. In such a society, the marked difference in wages, which is a feature of the present day, would not exist. Some few would stand out, as they always must, but they would be few. Some few would drag behind, but the vast majority would keep pace with one another.

The interest obtained on loans also varies, but it is usually to be found that an increase in interest owes itself to a greater risk in the loan. Where men invest their funds in ventures that may end in disaster, they expect a higher return. Interest will be based on that obtained on a loan backed by a good security, that earned in a reasonably safe industry. If that rises, all rates of interest will rise; if that drops all rates will drop.

These variations do not affect the laws of the distribution of wealth as they have been stated. The man who is more skilful produces more wealth and it is only natural that he should obtain more but that does not mean that he obtains a greater share of the total produced. Where land is free, he will get as much as he could get on his own account. Where land is all enclosed, he will be as subject to competition as any other man, and he will obtain no more than other equally skilful men will be willing to accept.

To sum up, the laws governing the distribution of wealth are:

1. Where land is free:

Rent is determined by the amount by which the produce of labour on the land in question exceeds the produce of the same labour on the best land open to use free of rent.

Wages are determined by what a man can obtain by working for himself on the best land open to use.

2. Where land is all enclosed:

Rent is determined by the amount by which the total produce of labour upon the land in question exceeds the amount of wages.

Wages are determined by the least which men will accept for employment.

In either of these cases, whether land is free or not, if wages increase as a proportion of the whole, rent must decrease. If wages decrease, as a proportion, rent must increase.

Interest will tend, where land is all enclosed, to the least the lender will accept; and may be drawn primarily from rent or wages, but will, for the greater part, be drawn primarily from rent.

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