The Natural Economic Order/Part I/Chapter 4

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Part I, Chapter 3 The Natural Economic Order
Part I. Chapter 4. Influence of Transport Costs on Rent and Wages
written by Silvio Gesell, translated by Philip Pye
Part I, Chapter 5
1929.



The proceeds of labour on freeland, waste-land, marsh and moor determine how much the landowner must pay as wages or how much he can claim as rent. The farm-labourer will obviously claim a wage equal to the proceeds of labour on freeland, since he is free to take possession of and cultivate freeland (which term we shall soon define more closely). Nor is it necessary for every farm-labourer to threaten to emigrate when negotiating about his wages. Married men with many children, for instance, would gain nothing by such a threat, since the landowner knows that it cannot be carried into effect. But it suffices if the emigration of the younger men causes a general shortage of labour. Even although many labourers are unable to emigrate, the shortage of labour caused by the emigration of others supports them in their negotiations about wages as effectively as if they had already booked their passage.

(*How greatly wages are influenced by emigrants and migrating labour is illustrated by the following passage from a speech by President Wilson on May 20th, 1918: " When the American Secretary of Defence was in Italy, a member of the Italian Government enumerated to him the various reasons why Italy felt intimately connected with the United States. The Italian Minister remarked: -

'If you wish to make an interesting experiment go into any troop-train and ask the soldiers in English which of them have been in America. The rest you will see for yourself.'

Our Secretary of Defence did board a troop-train and asked the men how many of them had been in America. It seems that more than half of them rose to their feet."

The Italian receivers of rent had driven these men to America, and the American receivers of rent had driven them home again. Because they fared as badly in America as they had fared at home, the poor devils kept restlessly wandering to and from.

Wilson added: "There are American hearts in this Italian army!" But we know better; when these migrating workers left their country they cursed their fate, and they cursed their fate when they left America.)

On the other hand the tenant farmer must be allowed to keep for himself an amount equal to the proceeds of labour of the freeland emigrant and the farm-labourer, after deduction of farm-rent and the interest on his working capital. Thus farm-rent also, is determined by the proceeds of labour on freeland. The landowner when calculating the rent of a farm need not leave the tenant a margin greater than the proceeds of labour on freeland, and the tenant is not compelled to accept less.

If the proceeds of labour on freeland fluctuate, the fluctuation is transferred to wages and to farm-rent.

Among the circumstances influencing the proceeds of labour on freeland we must consider, in the first place, the distance between the unappropriated land and the place where the products are consumed. We may suppose this to be the place where the commodities taken in exchange are made (manufacturing centre) or collected (trading centre). The importance of the distance from the market is best seen from the difference in the price of a field in the vicinity of the town and an equally fertile field farther from the market. The reason for the difference in price is simply the distance from the market.

In the Canadian wheat district, for example, where to this day good land can be obtained free by everyone, the wheat has to be carried on wagons, along unbeaten tracks, to the far-distant railroad by which it is conveyed to Duluth to be shipped on lake steamers. These carry the wheat to Montreal, where it is transferred to ocean steamers. From there the voyage continues to Europe, say to Rotterdam, where another transfer to the Rhine vessels is necessary. These go as far as Mannheim, and to reach the markets of Strasbourg, Stuttgart or Zürich, the wheat must here be loaded on railway trucks. And its price in these markets, after payment of import-duties, must be the same as the price of wheat grown on the spot. It is a long journey costing a great deal of money; yet the balance of the market price that remains after deducting import-duties, freight, insurance, brokerage, stamp-duties, interest on money advanced, sacks, etc. is still only the sum obtained by the sale of the product of labour, and not what is required by the settler in the wilderness of Saskatchewan. This sum has to be transformed into articles for use - salt, sugar, cloth, fire-arms, tools, books, coffee, furniture, etc. and it is only when all these objects have arrived at the settler's homestead, and the freight on them has been paid, that he can say: "These are the proceeds of my labour plus interest on my capital." (Whether the settler has borrowed the money necessary for emigration or is working with his own capital, he is bound to deduct interest on his capital from the product of his labour).

It is obvious, therefore, that the proceeds of labour on such freeland must depend to a great extent on transport costs. These costs have been steadily sinking, as is shown by the following table: (Taken from Mulhall's Dictionary of Statistics).

Freight-rates for one ton of grain from Chicago to Liverpool:- 1873 - $17 1880 - 10 1884 - 6

That is, from Chicago to Liverpool alone, a saving of $11 on freight for every ton of wheat; almost one sixth of the price in 1884, or one fourth of the present price (1911). But the distance from Chicago to Liverpool is only part of the distance from Saskatchewan to Mannheim; hence the $11 are only part of the actual saving on transport costs.

There is the same saving of freight on the goods consumed by the settler. The grain was the product of labour; the price, $63 in 1884, of a ton of wheat was the yield of labour; and the return shipment comprised the objects of the proceeds of labour, to obtain which the settler produced the wheat. For we must keep in mind that the industrial workers in Germany who eat Canadian wheat, must always pay for it with their own products which they send directly or indirectly to Canada and for which, therefore, freight has likewise to be paid. Thus the saving on cheaper freight is doubled, and the proceeds of labour on freeland, which determine the general wage in Germany, are augmented.

But it must not be supposed that the saving of a certain sum on freight is translated into an exactly corresponding increase in the proceeds of labour of the settler. In reality the proceeds of his labour will increase by only about half the saving on freight; and the reason for this is that the rising proceeds of labour of the settler on freeland raise the wages of the agricultural workers in Germany. The rising wages of farm labourers and of settlers on freeland cause industrial workers to pass over to these pursuits. The relation existing between the production of agricultural and of industrial goods is modified, and in consequence their exchange ratio is also modified. The settler has to pay higher prices for the objects of the proceeds of his labour (industrial products). The quantity of these industrial products does not, therefore, increase in proportion to the increased yield of labour of the settler on freeland resulting from lower transport costs. The difference, according to the laws of competition, falls to the industrial workers. What happens here is what happens when improved technical methods, such as steam-power, reduce the cost of production. The producer and the consumer share the gain.

Here again it may be worth while to illustrate by means of figures the influence of a change of transport costs on the proceeds of labour of the settler on freeland, and consequently on rent and wages.

I. The proceeds of labour of a settler on freeland in Canada with a freight-rate of $17 per ton in the year 1873. Less 10 times $17 for freight, etc. Product of labour: 10 tons of wheat shipped to Mannheim and there sold at $63 per ton $630 170 Yield of labour ... $460 This money-yield of labour is spent in Germany for the purchase of goods for use which, when shipped to Canada cause the same expense for packing, freight, import-duties, deterioration, etc. as the wheat on its voyage to Germany 170 The proceeds of labour of the settler therefore amount to $290

II. The same calculation in the year 1884 with a freight-rate of $6 per ton. Product of labour: 10 tons of wheat at $63 per ton $630 Less 10 times $6 for freight 60 Yield of labour $570 This yield of labour, which is $110 greater than in the first calculation, is now converted into the proceeds of labour, that is, into industrial products. For the reasons indicated above, the ratio of exchange between industrial and agricultural products has been modified in favour of industry. Let us suppose that this rise in the price of industrial commodities absorbs half the increased money-yield of labour, that is 55

 	$515

From this we have to deduct the return freight which we must put a little higher, as the amount of the goods has increased by the amount economised on freight; instead of $60 freight amounts to 61 The proceeds of labour of the settler now therefore amount to $454

Thus the decrease in freight has raised the proceeds of labour of the settler on freeland from $290 to $454, so the wages demanded by the German farm labourer will automatically increase by the same amount, and tenant farmers will claim a correspondingly larger share of the product of labour for themselves. And rent on land will decrease in the same ratio. If in Germany in 1873 the price of 10 tons of wheat was $630 And the wages for producing it amounted to $290 Then 10 tons of land (* A ton of land: a Danish land-measure denoting the amount of land that produces one ton of grain. A ton of land therefore indicates an area of land which varies according to the quality of the soil.) brought the landowner who worked or let them, rent amounting to $340 But if in 1884 wages rise to $454, the rent must fall to $176 (that is $340, less $164 increase of wages).

What the settler on freeland has to pay in freight is therefore deducted from the proceeds of his labour; and the landowner in Germany may demand this amount as farm-rent if he lets his land, or deduct it as rent from the product of his farm-labourers if he works his land himself. In other words, what the freeland settler pays as freight is pocketed by the landowner as rent.