Freeland

T >> Theodor Hertzka >> Freeland

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'And yet the answer lies close at hand. _It is true that in the exploiting
system of society the creditor does not derive the slightest advantage from
the increase in production which the debtor effects by means of the
creditor's savings; on the other hand, in the system of society based upon
social freedom and justice both creditor and debtor are equally
advantaged._ Where, as with us, every increase in production must be
equably distributed among all, the problem as to how the saver profits from
the employment of his capital solves itself. The machinist or the weaver,
whose tax, for example, is applied to the purchase or improvement of
agricultural machines, derives, with us, exactly the same advantage from
this as does the agriculturist; for, thanks to our institutions, the
increase of profit effected in any locality is immediately distributed over
all localities and all kinds of production.

'If anyone would ask what right a community based upon the free
self-control of the individual, and strongly antagonistic to Communism, has
to coerce its members to exercise thrift, the answer is that such coercion
is in reality not employed. The tax out of which the capitalisation is
effected is paid by everyone only in proportion to the work he does. No one
is coerced to labour, but in proportion as a man does labour he makes use
of capital. What is required of him is merely an amount proportional to
what he makes use of. Thus both justice and the right of self-control are
satisfied in every point.

'You see, it is exactly the same with interest as with the undertaker's
gains and with ground-rent: the guaranteed right of association saves the
worker from the necessity of handing over a part of the proceeds of his
production to a third person under any plea whatever. Interest disappears
of itself, just like profit and rent, for the sole but sufficient reason
that the freely associated worker is his own capitalist, as well as his own
undertaker and landlord. Or, if one will put it so, _interest, profit, and
rent remain, but they are not separated from wages, with which they combine
to form a single and indivisible return for labour_.'

And with this, good-night for the present.

----

CHAPTER XIX

Eden Vale: Aug. 11, ----

What we learnt from the director of the Freeland Central Bank occupied the
thoughts of my father and myself for a long time. As this high functionary,
who was a frequent visitor at the house of the Neys, dined with our hosts
the next day, the table-talk ran mainly upon the Freeland institutions. My
father began by asking whether the circumstance that the rest of the world,
from which Freeland did not--and, in fact, in this matter could
not--isolate itself, paid interest for loans, did not induce Freeland
savers to seek foreign investments for their money; or whether at least
some artificial means had not to be adopted to prevent this.

'There is nothing, absolutely nothing,' answered Mr. Clark, 'to prevent
Freeland savers from investing their capital abroad; in fact, at present--I
have quite recently been referring to the statistics upon this point
regularly published by our central bank--some two and a-half milliards
(2,500,000,000L) are invested partly in the large foreign banks, partly in
European and American bonds. For example, a good half of your Italian
national debt is in the hands of Freelanders. But what are such figures in
comparison with the gigantic amounts of our savings and capital? We cannot
prevent, and have no reason whatever to prevent, many Freelanders from
being induced by foreign interest to accumulate more capital than is needed
here at home on the one hand, and more than they consider necessary to
insure themselves against old age on the other. For what is required for
these two purposes cannot go abroad.'

'And is not this last-mentioned fact a disadvantage to the Freeland saver?'
I asked.

'A Freelander who thought so,' said Mr. Ney, 'must have a very imperfect
knowledge of what is to his own advantage. The interest paid by foreign
debtors can in no respect compare with the advantages offered by employment
of the money in Freeland, those advantages being, as you know, equably
distributed among all the members of our commonwealth. At the end of last
year we had altogether thirty-four milliards sterling invested. The
calculated profit of these investments amounted to seven milliards;
therefore, more than twenty per cent. Moreover, thanks to these same
investments, every Freelander enjoys gratuitously the electric light,
warming, the use of railways and steamships, &c., advantages the total
value of which would very nearly equal the remunerative production effected
by our investments. Anyone can now calculate how much more profitable
Freeland investments of capital are than foreign ones. Moreover, the two
and a-half milliards, of which friend Clark spoke, is a large sum in
European and American financial operations, and it has actually contributed
towards very considerably lowering from time to time the rate of interest
in all the foreign money-markets; but when this amount is compared with
Freeland finances, the investment of it abroad is seen to be simply an
insignificant and harmless whim. This large sum brings in, at the present
rate of interest--you will understand that Freeland savers invest merely in
the very best European or American bonds--about thirty-four millions
sterling; that is, not quite the two-hundredth part of the national revenue
of Freeland. And there can be no doubt that this whim will--for us--lose
much of even its present importance as Freeland continues to grow; for the
competition of our capital has already reduced the rate of discount of the
Bank of England to one and a-quarter per cent., and raised the price of the
One and a-Half per cent. Consols to 118; hence there can be no doubt that a
large flow of Freeland savings to Europe and America must, in a near
future, reduce the rate of interest to a merely nominal figure. That this
whim of investing capital abroad will altogether vanish as soon as foreign
countries adopt our institutions is self-evident.'

I now addressed to Mr. Clark the question in what way the Freeland
commonwealth guarded against the danger of _crises_, which, in my opinion,
must here be much more disastrous than in any other country.

'Crises of any kind,' was the answer, 'would certainly dissolve the whole
complex of the Freeland institutions; but here they are impossible, for
lack of the source from which they elsewhere spring. The cause of all
crises, whether called production-crises or capital-crises, lies simply in
over-production--that is, in the disproportion between production and
consumption; and this disproportion does not exist among us. In fact, the
starting-point of the Freeland social reform is the correct perception of
the essential character of over-production arrived at twenty-six years ago
by the International Free Society. Until then--and in the rest of the world
it is still the case--the science of political economy found in this
phenomenon an embarrassing enigma, with which it did not know how better to
deal than to deny its existence. There was no real over-production--that
is, no general non-consumption of products--so taught the orthodox
political economists; for, they contended, men labour only when induced to
do so to supply a need, and it is therefore impossible in the nature of
things that more goods should be produced than can be consumed. And, on our
supposition, to which I will refer presently, this is perfectly correct.
Everyone will use what he produces to meet a certain need; he will either
use his product himself or will exchange it for what another has produced.
It matters not what that other product is, it is at any rate something that
has been produced; the question never need be what kind of product, but
only whether some product is asked for. Let us assume that an improvement
has taken place in the production of wheat: it is possible that the demand
for wheat will not increase in proportion to the possibility of increasing
its production, for it is not necessary that the producers of wheat should
use their increased earnings in a larger consumption of wheat. But then the
demand for something else would correspondingly increase--for example, for
clothing, or for tools; and if this were only known in time, and production
were turned in that direction, there would never be a disturbance in the
exchange-relations of the several kinds of goods. Thus the orthodox
doctrine explains crises as due not to a surplus of products in general,
not to a mere disproportion between production and consumption, but to a
transient disturbance of the right relation between the several kinds of
production; and it adds that it is simply paradoxical to talk of a
deficient demand in view of the misery prevailing all over the world.

'In this, in other respects perfectly unassailable reasoning, only _one_
thing is forgotten--the fundamental constitution of the exploiting system
of society. Certainly it is a cruel paradox to speak of a general lack of
demand in view of boundless misery; but where an immense majority of men
have no claim upon the fruits of their labour, this paradox becomes a
horrible reality. What avails it to the suffering worker that he knows how
to make right, good, and needful use of what he produces, if that which he
produces does not belong to him? Let us confine ourselves to the example of
the increased production of wheat by improved methods of cultivation. If
the right of disposal of the increased quantity of grain belonged to the
agricultural producers, they would certainly eat more or finer bread, and
thus themselves consume a part of the increased production; with another
part they would raise the demand for clothing, and with another the demand
for implements, which would necessarily be required in order that more
grain and clothing might be produced. In such a case it would really be
merely a question of restoring the right relation between the production of
wheat, of clothing, of implements, which had been disturbed by the
increased production of one of these--wheat; and increased production, a
condition of greater prosperity for all, would, after some transient
disturbances, be the inevitable consequence. But since the increased
proceeds of wheat-cultivation do not belong to the workers, since those
workers receive in any case only a bare subsistence, the progress which has
been made in their branch of production does not enable them to consume
either more grain or more clothing, and therefore there can exist no
increased demand for implements for the production of wheat and textile
fabrics.'

'But,' I objected, 'though this increased product is withheld from the
workers, it is not ownerless--it belongs to the undertakers; and these too
are men who wish to use their gains to satisfy some want or other. The
undertakers will now increase their consumption; and after all one might
suppose it would be impossible that a general disproportion should exist
between supply and demand. Certainly it would now be commodities of another
kind, the production of which would be stimulated in order to restore an
equilibrium between the several branches of labour. If the increase
belonged to the workers, then would more grain, more ordinary clothing, and
more implements be required; but since it belongs to a few undertakers
there will be an increased demand only for luxuries--dainties, laces,
equipages--and for the implements requisite to produce these luxuries.'

'Exactly!' said David, who here joined in the conversation. 'Only the
undertakers are by no means inclined to apply, in any considerable degree,
the surplus derived from increased production to an additional consumption
of luxuries; but they capitalise most of it--that is, invest it in
implements of production. Nay, in some circumstances--as we heard
yesterday--the "undertaker" is no man at all possessing human wants, but a
mere dummy that consumes nothing and capitalises everything.'

'So much the better,' I said, 'wealth will increase all the more rapidly;
for rapidly growing capital means rapidly increasing production, and that
is in itself identical with rapidly increasing wealth.'

'Splendid!' cried David. 'So, because the working masses cannot increase
their consumption, and the undertakers will not correspondingly increase
theirs, and consequently there can be no increased consumption of any
commodity whatever, therefore the surplus power of production is utilised
in multiplying the means of production. That is, in other words, no one
needs more grain--so let us construct more ploughs; no one needs more
textile material--so let us set up more spinning-mills and looms! Are you
not yet able to measure the height of absurdity to which your doctrine
leads?'

I think, Louis, you, like myself, will admit that there is simply no reply
to reasoning so plain and convincing. An economic system which bars the
products of human industry and invention from the only use to which they
should finally be applied--namely, that of satisfying some human
requirement--and which is then astonished that they cannot be consumed,
narrowly escapes idiocy. But that such is the character of the system which
prevails in Europe and America must in the end become clear to everyone.

'But, in heaven's name, what becomes of the productive power among us which
thus remains unemployed?' I asked. 'We are, on the whole, as advanced in
art, science, and technical skill as you are in Freeland; I must therefore
suppose that we could become as rich, or nearly so, as you, if we could
only find a use for all our production. But we do not actually possess a
tenth of your wealth, and yet there is twice as much hard work done among
us as there is here. For though among you everyone works, and among us
there are several millions of persons of leisure who live simply upon the
toil of others, yet this is counterbalanced by the circumstance that our
working masses are kept at their toil ten hours or more daily, whilst here
an average working day is only five hours. Certainly among us there are
millions of unemployed workers; but that also is more than compensated for
by the labour of women and children, which is unknown among you. Where
then, I repeat, lies the immense difference between the utilisation of our
powers of production and of yours?'

'In the equipment of labour,' was the answer. 'We Freelanders do not work
so hard as you do, but we make full use of all the aids of science and
technics, whilst you are able to do this only exceptionally, and in no case
so completely as we do. All the inventions and discoveries of the greatest
minds are as well known to you as to us; but as a rule they are taken
advantage of only by us. Since your aristocratic institutions prevent you
from enjoying the things the production of which is facilitated by those
inventions, you are not able to take advantage of the inventions except in
such small measure as your institutions permit.'

Even my father was profoundly moved by this crushing exposition of a system
which he had always been accustomed to honour as the highest emanation of
eternal wisdom. 'Incredible! shocking!' he murmured in a tone audible only
to myself.

But Mr. Clark proceeded: 'Among us, on the contrary, the theorem of the
so-called classical economics, that a general excess of production is
impossible, has become a truth, for in Freeland consumption and production
exactly tally. Here there can be over-production only temporarily and in
_isolated_ kinds of goods--that is, the equilibrium between different kinds
of production may be temporarily disturbed. But we have no need to be
afraid of even this trifling danger. The intimate connection of all
productive interests springing from the nature of our institutions is an
antecedent guarantee of equilibrium between all branches of production. A
careful examination will show that the whole of Freeland is one great
productive society, whose individual members are independent of one
another, and yet are connected in one respect--namely, in respect of the
proceeds of their labour. Just because everyone can labour where and how he
pleases, but everyone's labour is alike in aiming at the highest possible
utility, so--apart from any incidental errors--it is impossible but that an
equal amount of labour should result in an equal amount of utility. All our
institutions tend towards this one point. At first, as long as our
commonwealth was in its initial stages, it sometimes happened that
considerable inequalities had to be subsequently balanced; the producers
did not always know until the year's accounts were closed what one and the
other had earned. But that was a period of childhood long since outlived.
At present, every Freelander knows, to within such trifling variations as
may be due to little unforeseen accidents, exactly what he and others have
earned, and also what they have every prospect of earning in the near
future. He does not wait for inequalities to arise and then set about
rectifying them; but he takes care that inequalities shall not arise. Since
our statistics always show with unerring accuracy what at the time is being
produced in every branch of industry, and since the demand as well as its
influence upon prices can be exactly estimated from a careful observation
of past years, therefore the revenue not only of every branch of industry,
but of every separate establishment, can be beforehand so reliably
calculated that nothing short of natural catastrophes can cause errors
worth notice. If such occur, then comes in the assistance of the reciprocal
insurance. In fact, in this country, not only are there no crises, but not
even any considerable variations in the different productions. Our
Statistical Department publishes an unbroken series of exact comparative
statistics, from which can at any time be seen where either fresh demand or
excess of labour is likely to arise; our supply of labour is controlled by
these returns, and that is sufficient--with rare exceptions--to preserve a
perfect equilibrium in production. It frequently occurs that here or there
a newly started establishment comes to grief, particularly in the mining
industry. Such a failure must not, however, be regarded as a
bankruptcy--how can undertakers become bankrupt when they have neither
ground-rent, nor interest, nor wages to pay, and who in any case still
possess their highly priced labour-power?--but at the worst as a case of
disappointed expectations. And should the very rare circumstance occur,
that the community or an association loses the loaned capital through the
premature death of the borrower, of what importance is that in the face of
the gigantic sums safely employed in our business? And if a guaranty (_del
credere_) were insisted upon to cover such a loss, it would amount to
scarcely a thousandth part of one per cent., and would not be worth the ink
used in writing it.'

'And do not foreign crises sometimes disturb the calm course of your
Freeland production? Are not your markets flooded, through foreign
over-production, with goods for which there is no corresponding demand?' I
asked.

'It certainly cannot be denied that we are considerably inconvenienced by
the frequent and sudden changes of price in the markets of the world caused
by the anarchic character of the exploiting system of production. We are
thereby often compelled to diminish our production in certain directions,
and divert the labour thus set free to other branches of industry, though
there is no actual change in the cost of production or in the relative
demand. These foreign, sudden, and incalculable influences sometimes make a
diversion of labour from one production to another necessary in order to
preserve an equilibrium in the profits, though the regular and automatic
migration of labour from one industry to another is sufficient to correct
the disturbance in the relations between supply and demand due to natural
causes. But these spasmodic foreign occurrences cannot produce a serious
convulsion in our industrial relations. Just as it is impossible to throw
out of equilibrium a liquid which yields to every pressure or blow, so our
industry is able to preserve its equilibrium by means of its absolutely
free mobility. It may be thrown into fruitless agitation, but its natural
gravity at once restores the harmony of its relations. But, as I have said,
such a disturbance is produced only by a partial over-production abroad.
That this brings about a superabundance of all commodities, we care but
little. Since foreign countries do not send us their goods for nothing, but
demand other goods in return, what those other goods shall be is their
business, not ours. We have no interest-bearing bonds or saleable property
in land; hence our export goods must be the produce of our labour. The fact
that in Freeland every product must find a purchaser is therefore by no
means affected by external trade.'

'That is very clear,' I admitted.

'But,' interposed my father,' why do you not protect yourselves against
disturbance due to foreign fluctuations in production, by a total exclusion
of foreign imports?'

'Because that would be to cut off one's hand in order to prevent it from
being injured,' was Mr. Clark's drastic answer. 'We import only those goods
which we cannot produce so cheaply ourselves. But since, as I have already
taken the liberty of saying, the imported goods are not presented to us,
but must be paid for by goods produced by us, it is of importance that we
should be able to produce the goods with which we make the payment more
cheaply--that is, with less expenditure of labour-power--than we could the
imported goods. For instance, we manufacture scarcely any cotton goods, but
get nearly all such goods from England and America. We could, certainly,
manufacture cotton goods ourselves, but it is plain that we should have to
expend upon their manufacture more labour-power than upon the production of
the corn, gold, machinery, and tools with which we pay for the cotton goods
that we require. If it were not so, we should manufacture cotton goods
also, for there is no conceivable reason for not doing so but the one just
mentioned. If, therefore, our legislature prohibited the importation of
cotton goods, we should have to divert labour from other branches of
industry for the sake of producing _less_ than we do now. We should have
either to put up with fewer goods, or to work more, to meet the same
demand. Hence, in this country, to enact a protective duty would be held to
be pure madness.'

'Then you hold,' said my father, 'that our European and American economists
and statesmen who still in part adhere to the system of protection, are
simply Bedlamites; and you believe that the only rational commercial policy
is that of absolute free trade?'

'Allow me to say,' answered Mr. Clark,' that Europe and America are not
Freeland. I certainly cannot regard protection even abroad as rational, for
the assumptions from which it starts are under all circumstances false. But
neither do I think the foreign free trader is essentially wiser than the
protectionist, for he also starts from assumptions which are baseless in an
exploiting country. The prohibitionists think they are encouraging
production: they are doing the opposite, they are hindering and hampering
production; and the free traders, in so far as they insist upon this fact,
are perfectly correct. Both parties, however, fail to see that in an
exploiting society, which is never able to utilise more than a small part
of its power to produce, the influence of legislative interference with
trade upon the good or the bad utilisation of productive power is a matter
of very little importance. Of what advantage is it to the free traders that
a nation under the domination of their commercial system _is able_ to make
the most prolific use of their industrial capacities, so long as the
continuance of industrial servitude prevents this nation from enjoying more
than enough to satisfy the barest necessities of life? More than is
consumed cannot, under any circumstances, be produced; and consumption
among you abroad is so infinitely small, that it is verily ridiculous to
dispute over the question whether this or that commodity can be produced
better at home or abroad.

'What alone interests us in this controversy among the foreign commercial
politicians is that neither party has the slightest suspicion that what the
free traders rightly reproach the protectionists with, and what the latter
wrongly defend, is the very thing that gains so many adherents to
protection--namely, the hindering and hampering of production. The
protectionists have a right to boast that they compel their people to apply
two day's labour or a double amount of capital to the production at home of
a thing which, by means of external trade, might have been exchanged for
things that are the product of merely half as much expenditure of home
labour. We, who work in order to enjoy, would have a good right to treat as
insane any persons among us who proposed such a course as an "encouragement
of home labour"; but among you, where labour and enjoyment are completely
dissevered, where millions cry for work as a favour--among you, the
hampering of labour is felt to be a benefit because it makes more toil
necessary in order to procure an equal amount of enjoyment. Among you it is
also a somewhat dangerous narcotic, for protection has a Janus head: it not
merely increases the toil, it at the same time still more diminishes the
consumption by raising the price of the articles in demand, the rise in
price never being followed immediately by a rise in wages; so that, in the
end, in spite of the increased difficulty in production, no more labour and
capital are employed than before. But the intimate relation between these
things is as a book sealed with seven seals to both protectionists and free
traders. Had it been otherwise, they must long since have seen that the
cure for industrial evils must be looked for not in the domain of
commercial politics, but in that of social politics.'