The Natural Economic Order/Part I/Chapter 16

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Whether wheat comes from Canada, from Argentina, from Siberia, or from a neighbouring farm, whether it be the duty-burdened wheat of a toiling German emigrant or duty-protected wheat of a wealthy Pomeranian squire, does not concern the miller. If the quality is the same, so also is the price.

This is true of all commodities. Nobody inquires about the cost of production of the goods offered for sale; everybody is indifferent about their origin. It makes no difference whether one man has been enriched by them and another ruined; if the quality is the same, so is the price. This is clearly seen in the case of coins. Nobody inquires where, when, or how the gold of the individual coins was obtained. One coin may have been bloodstained plunder, another the product of a toil-worn gold digger, but they circulate indifferently side by side.

Whatever the difference in the costs of production of the individual competing commodities - the price remains the same. This is known to everyone who uses raw materials, and it is known also to the owner of the land on which the raw materials can be raised. If, for example, a city needs paving stones for a new street, the proprietor of the nearest quarry will at once estimate, the distance from the street to the nearest free quarry of equally good paving stones. He will then calculate the cost of carrying the stones from there to the street where they are needed, and the price is made. This price the city will have to pay, because only from this price upwards can competition come into play, and competition determines price. (The wages in both quarries are assumed to be the same, and may therefore be here left out of account).

If, however, direct competition is entirely lacking, if there is no free quarry within reachable distance, and the proprietor in consequence demands excessive prices for his paying stones, competition will be sustained by substitutes, in this case, say, wood-pavement, macadam, gravel, asphalt, or a railway; or the construction of the street may be abandoned. In the latter case the advantage expected by the city from the construction of the street would be the only competition which the proprietor of the quarry need take into account.

The same is true of all other raw materials without exception. If someone requires lime for a cement factory, clay for a brickyard, bark for a tannery, coal, iron ore, wood, water, building stones, sand, oil, mineral water, wind for his windmill, sun for his sanatorium, shade for his summer-house, warmth for his grapes, frost for his skating rink, the landowner who happens to be in possession of these gifts of nature will exact payment for them, just as does the quarry-owner for his paving stones, and always on exactly the same principle. The circumstances may be different in each separate case; competition of substitutes may limit the greed of the land-owner to a greater or less degree; but always the same law holds good: the landowner exploits the advantages which the products, the situation or the nature of his property offer, in such a manner as to leave the purchaser for his labour only what he would have obtained if he had been forced to procure his raw material from waste land, from the desert, or from freeland.

From these considerations we deduce a proposition which is of great importance for the general law of wages:

The product of the poorest, remotest and therefore often ownerless sources of raw materials, loaded with freight charges and with the wages paid to work the more favoured sources of similar materials, forms the basis of the price of these materials. Whatever the owners of the favoured sources save in the cost of production, is rent.

The consumer has to pay for all the products of the earth, for all raw materials, as if they had been produced on waste land at great expense, or conveyed at great expense from ownerless land.

If the product of a man's work on the poorest soil were equal to the minimum of what man needs to subsist, the private ownership of land would make the " iron law of wages " a reality; but as we have seen, such is not the case. For this reason, but only for this reason, can wages rise above the minimum of existence.

The ground-rent of cities, which in our industrial age very nearly equals the total rent on agricultural land, is determined on exactly the same principle, though in somewhat different circumstances.

The value of the land upon which Berlin is built was estimated in 1901 at 2911 million marks which, with interest at 4% corresponds to a rent of 116 millions. This sum alone, distributed over the 4 million hectares of the province of Brandenburg, is equal to a rent of 30 marks a hectare. With the ground-rent of the other towns of the province added, the urban rent may amount to about 40 marks a hectare, a sum which, considering the poverty of the soil and the large areas of water, swamp and forest, possibly exceeds the rent on agricultural land. The position of the province of Brandenburg, a region with poor soil yet containing the capital of the German Empire is, indeed, exceptional; nevertheless these figures show the great importance of urban ground-rent at the present day.

These figures are likely to surprise many readers; but, as someone has justly remarked: it is becoming doubtful whether, measured by the rental, our great landed estates are not to be looked for in Berlin rather than, as hitherto, in Silesia.

How is this curious phenomenon to be accounted for; what determines the rent of building land, and what is its relation to the general law of wages ?

In the first place we must explain why men congregate in cities in spite of the high ground-rent; why do they not spread all over the country ? Calculated by the above figures the average ground-rent for every inhabitant of Berlin is 58 marks, that is, for families of 5 persons 290 marks yearly; an expense which is entirely avoided in the country, for the ground-rent of the average country cottage is so trifling that it could be paid with the contents of its earth-closet. And the hygienic advantages of life in the country contrast strikingly with the miserable housing conditions in towns. There must, therefore, be other weighty reasons to make people prefer the town.

If we assume that the social advantages of the town are cancelled by its disadvantages (bad air, dust, noise and numerous other offences to our senses), all that is left to balance the expense of urban life is the economic advantage of living in a town. The interdependence and co-operation of the city industries must afford advantages over isolated industry in the country which in the case of Berlin counterbalance the 116 millions of ground-rent. If it were not so, the growth of cities would be quite unaccountable.

No industry can be established in the country which, from its seasonal character, occupies many workers today, and few or none tomorrow; for the worker must work all the year round. In the city the varying demand for labour in the different industries is more or less levelled, so that workmen dismissed by one manufacturer are engaged by another. In this way a workman has greater security against unemployment in a town than in the country.

In the country the manufacturer lacks opportunity for the exchange of ideas, the stimulus given by intercourse with other businessmen. Workmen trained in different factories and acquainted with various methods are also a considerable asset to the city manufacturer as compared with his competitor in the country. Thrown entirely on his own resources, and compelled to employ workmen deprived of intercourse with workmen from other industries and other countries, the country manufacturer is apt to lag behind in the adoption of improvements. He also often lacks the facilities afforded by the city for the sale of his products. Purchasers from all parts of the country and from other countries flock to the city where they find everything they need, collected in one place. The city manufacturer is visited by foreign customers who draw attention to the consumers' wishes, and moreover give him valuable information about market conditions, prices, and so forth. The country manufacturer is deprived of all this. Instead of being visited by his customers he must sacrifice time and money in travelling to visit them. He must collect his information about prices of raw materials, market conditions abroad and the solvency of his customers in round-about ways that are often anything but reliable.

Furthermore he is forced to lay in much larger stocks of raw material than his competitor in town who is able to procure everything immediately when needed; and if through some oversight the country manufacturer runs short of some article, perhaps only a screw, the whole factory is brought to a standstill until the missing part has been sent from "town". Or if a machine breaks down, a mechanic may have to be summoned from town, and until he arrives the factory is again idle.

In short, the disadvantages connected with the factory itself, with the workmen, the purchase of raw materials and the sale of finished goods, are so many that the country manufacturer forced to compete with a rival in town cannot possibly pay the same wages as the latter. Thus all that he and his workmen save in ground-rent is deducted from the proceeds of their labour.

Hence the only industries that can develop in the country are those which require so much space that all disadvantages are counter-balanced by the saving on ground-rent; or those which cannot be carried on in towns (saw-mills, brickyards, rolling mills) or are forbidden by the police for hygienic reasons (lime-kilns, powder-mills, tanneries, etc.); or those which, having a simple technical organisation, allow the manager to establish his commercial headquarters in town. In every other case the town is preferred.

We know therefore where the money to pay the 116 millions of marks ground-rent of the city of Berlin comes from, and we also know what sets the limit to the growth of cities. The advantages of combined work have been calculated in money and pocketed as ground-rent by the landlords.

If the city grows, its economic advantages grow, and ground-rents grow also. And if ground-rents grow out of proportion to the advantages of the city, its growth is interrupted.

If you wish to enjoy the advantages afforded by the city for your trade, you must pay the landlords for these advantages; otherwise you are free to establish your factory, shop, or dancing hall in the woods and fields. Calculate what is more advantageous, and act accordingly. Nobody prevents you from settling outside the city gates. If you can induce your customers to tramp out to you through rain and snow, dust and mud, and there to pay the same price as in the centre of the city, so much the better for you. If you think it unlikely, then pay the ground-rent and establish yourself in town. You have indeed another possibility, you can try selling your goods cheaper outside the city. Some customers will be attracted by the cheaper prices; but where is the advantage? What you save on rent, you lose in the price of the goods sold.

Ground-rents are thus determined by precisely the same law that governs the rents of agricultural land and raw materials. All the advantages of the city (among which we should mention the division of labour), are reaped by the ground-landlord. Just as German wheat is sold for the price it would have fetched if it had been grown in Siberia and taxed at the frontier, so the goods produced in a city must be exchanged at the prices they would have fetched if loaded with all the disadvantages of goods produced far away from industrial centres.

Agricultural rent captures all the advantages of situation and nature, leaving waste-land and wilderness for the cultivator; city ground-rent claims for itself all the advantages of society, of mutual aid, of organisation, of education, and reduces the proceeds of those engaged in city industry and commerce to the level of producers isolated in the country.