The Natural Economic Order/Part I/Introduction
If employers of labour were offered money-capital at half the present rate of interest, the yield of every other class of capital would soon also fall to half. If, for example, interest on the money borrowed to build a house is less than the rent of a similar existing house, or if it is more profitable to bring a waste into cultivation than to rent similar farmland, competition must inevitably reduce house and farm rents to the level of the reduced interest on money. For the surest method of depreciating material capital (a house, a field) is obviously to create and operate additional material capital alongside it. But it is a law of economics that increased production increases the mass of available money-capital. This tends to raise wages and finally to reduce interest to zero.
Proudhon: What is Property ?
The abolition of unearned income, of so-called surplus-value also termed interest and rent, is the immediate economic aim of every socialistic movement. The method generally proposed for the attainment of this aim is communism in the shape of nationalisation or socialisation of production. I know of only one socialist - Pierre Joseph Proudhon - whose investigations into the nature of capital point to the possibility of another solution of the problem. The demand for nationalisation of production is advocated on the plea that the nature of the means of production necessitates it. It is usually asserted off-hand, as a truism, that ownership of the means of production must necessarily in all circumstances give the capitalist the upper hand when bargaining with the workers about wages - an advantage represented, and destined eternally to be represented, by " surplus-value" or capital-interest. No one, except Proudhon, was able to conceive that the preponderance now manifestly on the side of property can be shifted to the side of the dispossessed (the workers), simply by the construction of a new house beside every existing house, of a new factory beside every factory already established.
Proudhon showed socialists over fifty years ago that uninterrupted hard work is the only method of successfully attacking capital. But this truth is even further from their comprehension to-day than it was in Proudhon's time.
Proudhon, indeed, has not been entirely forgotten, but he has never been properly understood. If his advice had been understood and acted on, there would now be no such thing as capital. Because he was mistaken in his method (the exchange banks), his theory as a whole was discredited.
How was it that the Marxian theory of capital succeeded in ousting that of Proudhon and in giving sovereign sway to cornmunistic socialism ? How is it that Marx and his theory are spoken of by every newspaper in the world ? Some have suggested as a reason the hopelessness, and the corresponding harmlessness, of the Marxian doctrine. "No capitalist is afraid of his theory, just as no capitalist is afraid of the Christian doctrine; it is therefore positively an advantage to capital to have Marx and Christ discussed as widely as possible, for Marx can never damage capital. But beware of Proudhon; better keep him out of sight and hearing! He is a dangerous fellow since there is no denying the truth of his contention that if the workers were allowed to remain at work without hindrance, disturbance or interruption, capital would soon be choked by an over-supply of capital (not to be confused with an over-production of goods). Proudhon's suggestion for attacking capital is a dangerous one, since it can be put into practice forth-with. The Marxian programme speaks of the tremendous productive capacity of the present-day trained worker equipped with modem machinery and tools, but Marx cannot put this tremendous productive capacity to use, whereas in the hands of Proudhon it becomes a deadly weapon against capital. Therefore talk away, harp on Marx, so that Proudhon may be forgotten."
This explanation is plausible. And is not the same true of Henry George's land-reform movement ? The landowners soon discovered that this was a sheep in wolf's clothing; that the taxation of rent on land could not be carried out in an effective form and that the man and his reform were therefore harmless. The Press was allowed to advertise Henry George’s Utopia, and land-reformers were everywhere received in the best society. Every German "agrarian" and speculator in corn-duties turned single-taxer. The lion was toothless, so it was safe to play with him, just as many persons of fashion are pleased to play with Christian principles.
Marx's examination of capital goes astray at the outset.
- 1.Marx succumbs to a popular fallacy and holds that capital consists of material goods. For Proudhon, on the contrary, interest is not the product of material goods, but of an economic situation, a condition of the market.
- Marx regards surplus-value as spoil resulting from the abuse of a power conferred by ownership. For Proudhon surplus-value is subject to the law of demand and supply.
- 2. According to Marx, surplus-value must invariably be positive. For Proudhon the possibility of negative surplus-value must be taken into consideration. (Positive surplus-value is surplus-value on the side of supply, that is, of the capitalist, negative surplus-value is surplus-value on the side of labour).
- 3. Marx's remedy is the political supremacy of the dispossessed, to be achieved by means of organisation. Proudhon's remedy is the removal of the obstacles preventing us from the full development of our productive capacity.
- 4. For Marx, strikes and crises are welcome occurrences, and the final forcible expropriation of the expropriators is the means to the end. Proudhon, on the contrary, says: On no account allow yourselves to be deterred from work, for the most powerful allies of capital are strikes, crises and unemployment; whereas nothing is more fatal to it than hard work.
- 5. Marx says: Strikes and crises will sweep you along towards your goal; the great collapse will land you in paradise. - No, says Proudhon, that is humbug, methods of that kind carry you away from your goal. With such tactics you will never filch as much as one per cent from interest.
- 6. To Marx private ownership means power and supremacy. Proudhon, on the contrary, recognises that this supremacy is rooted in money, and that under altered conditions the power of private ownership may be transformed into weakness.
If, as Marx affirms, capital consists of material goods, possession of which gives the capitalist his supremacy, any addition to these goods would necessarily strengthen capital. If a load of hay or a barrowful of economic literature weighs 100 lbs., two loads, two barrowfuls must weigh exactly 200 lbs. Similarly if a house yields $1000 of surplus-value annually, ten houses added to it must always, and as a matter of course, yield ten times $1000 - on the assumption that capital consists simply of material goods.
Now we all know that capital cannot be added up like material goods, since additional capital not infrequently diminishes the value of capital already existing. The truth of this can be tested by daily observation. Under certain circumstances the price of a ton of fish may be greater than the price of 100 tons. What price would air fetch, if it were not so plentiful ? As it is, we get it gratis.
Not long before the outbreak of the war landlords in the suburbs of Berlin were in despair about the decline of house-rents, that is, surplus-value, and the capitalistic press was clamorous in denunciation of the
"building fury of the workers and contractors",of the "building plague rife in the housing industry."(Quoted from the German Press.)
Are not these expressions a revelation of the precarious nature of capital ? Capital, which Marxists hold in such awe, dies of the "building plague"; it decamps before the "building fury" of the workers! What would Proudhon and Marx have advised in such a situation ? "Stop building", Marx would have cried; "lament, go abegging, bemoan your unemployment, declare a strike! For every house you build adds to the power of the capitalists as sure as two and two make four. The power of capital is measured by surplus-value, in this case house-rent; so the greater the number of houses the more powerful, surely, is capital. Therefore let me advise you, limit your output, agitate for an eight-hour or even a six-hour day, since every house you build adds to house-rent and house-rent is surplus-value. Restrain, therefore, your building fury, for the less you build, the more cheaply you'll be housed!"
Probably Marx would have shrunk from uttering such nonsense. But the Marxian doctrine, which regards capital as a material commodity, misleads the workers into thinking and acting on these lines.
Now listen to Proudhon: "Full steam ahead ! Let's have the building fury, give us the building plague! Workers and employers, on no account let the trowel be snatched from your hands. Down with all who attempt to interfere with your work; they are your deadly enemies! Who are these that prate of a building plague, of over-production in the housing industry, while house-rents still show a trace of surplus-value, of capital-interest ? Let capital die of the building plague! For some five years only have you been allowed to indulge in your building fury, and already capitalists feel the pinch, already they are lamenting the decline of surplus-value, rents have already dropped from 4 to 3 % - that is, by a quarter. Three times five years more of untrammelled labour, and you will be revelling in houses freed from surplus-value. Capital is dying, and it is you who are killing it by your labour."
Truth is as sluggish as a crocodile in the mud of the eternal Nile. It does not reck of time; time measured by the span of human life means nothing to it, since it is everlasting. But truth has an agent which, mortal like man, is always hurried. For this agent, time is money; it is ever busy and excited, and its name is error. Error cannot afford to lie low and let the ages pass. It is constantly giving and receiving hard knocks. It is in the way of everyone and everyone is in its way. It is the true stumbling block.
Therefore it does not matter if Proudhon is taboo. His adversary Marx, with his errors, takes good care that the truth shall come to light. And in this sense we may say that Marx has become the agent of Proudhon. Proudhon in his grave is at peace. His words have everlasting worth. But Marx must keep restlessly moving. Some day, however, the truth will prevail and Marx's doctrines will be relegated to the museum of human errors.
Even if Proudhon had really been suppressed and forgotten, the nature of capital would still remain unchanged. The truth would be discovered by another; of the discoverer's name truth takes no account.
The author of this book was led into the path pursued by Proudhon and came to the same conclusions. Perhaps it was fortunate that he was ignorant of Proudhon's theory of capital, for he was thus enabled to set about his work the more independently, and independence is the best preparation for scientific inquiry.
The present author has been more fortunate than Proudhon. He discovered what Proudhon had discovered fifty years earlier, namely the nature of capital, but as well he discovered a practicable road to Proudhon's goal. And that, after all, is what matters.
Proudhon asked: Why are we short of houses, machinery and ships ? And he also gave the correct answer: Because money limits the building of them. Or, to use his own words: "Because money is a sentinel posted at the entrance to the markets, with orders to let no one pass. Money, you imagine, is the key that opens the gates of the market (by which term is meant the exchange of products), that is not true-money is the bolt that bars them."
Money simply will not suffer another house to be built in addition to every existing house. As soon as capital ceases to yield the traditional interest, money strikes and brings work to a standstill. Money, therefore, acts like a serum against the "building-plague" and the "working fury". It renders capital (houses, industrial plant, ships) immune from the menace of its own increase.
Having discovered the barring or blocking nature of money, Proudhon raised the slogan: Let us combat the privilege of money by raising goods and labour to the level of money. For two privileges, if opposed, neutralise one another. By attaching to goods the surplus weight now on the side of money, we make the two weights balance.
Such was Proudhon's idea, and to put it into practice he founded the exchange banks. As everyone knows, they failed.
And yet the solution of the problem which eluded Proudhon is simple enough. All that is needed is to abandon the customary standpoint, the standpoint of the possessor of money, and to look at the problem from the standpoint of labour and of the possessor of goods. This shifting of the standpoint will let us grasp the solution directly. Goods, not money, are the real foundation of economic life. Goods and their compounds make up 99% of our wealth, money only 1%. Therefore let us treat goods as we treat foundations; let us not tamper with them. We must accept goods as they appear in the market. We cannot alter them. If they rot, break, perish, let them do so; it is their nature. However efficiently we may organise Proudhon's exchange banks, we cannot save the newspaper in the hands of the newsvendor from being reduced, two hours later, to waste paper, if it fails to find a purchaser. Moreover we must remember that money is a universal medium of saving; all the money that serves commerce as a medium of exchange comes to the savings banks and lies there until it is enticed into circulation again by interest. And how can we ever raise goods to the level of ready money (gold) in the eyes of savers ? How can we induce them, instead of saving money, to fill their chests or store-rooms with straw, books, bacon, oil, hides, guano, dynamite, porcelain ?
And yet this is what Proudhon really aimed at in attempting to bring goods and money to a common level. Proudhon had overlooked the fact that money is not only a medium of exchange, but also a medium of saving, and that money and potatoes, money and lime, money and cloth can never in any circumstances be looked upon as things of equal worth in the chests of the savers. A youth saving against old age will prefer a single gold coin to the contents of the largest warehouse.
We cannot, therefore, tamper with goods, they are the primary factor to which everything else must be adapted. But let us look a little more closely at money, for here some alteration may prove feasible. Must money always remain what it is at present ? Must money, as a commodity, be superior to the commodities which, as medium of exchange, it is meant to serve ? In case of fire, flood, crisis, war, changes of fashion and so forth, is money alone to be immune from damage ? Why must money be superior to the goods which it is to serve ? And is not the superiority of money to goods the privilege which we found to be the cause of surplus-value, the privilege which Proudhon endeavoured to abolish ? Let us, then, make an end of the privileges of money. Nobody, not even savers, speculators, or capitalists, must find money, as a commodity, preferable to the contents of the markets, shops, and warehouses. If money is not to hold sway over goods, it must deteriorate, as they do. Let it be attacked by moth and rust, let it sicken, let it run away; and when it comes to die let its possessor pay to have the carcass flayed and buried. Then, and not till then, shall we be able to say that money and goods are on an equal footing and perfect equivalents - as Proudhon aimed at making them.
Let us put this demand in terms of a commercial formula. We say: The possessor of goods, during the period of storage, invariably incurs a loss in quantity and quality. Moreover he has to pay the cost of storage (rent, insurance, caretaking and so on). What does all this amount to annually ? Say 5% - which is more likely to be below than above the actual amount.
Now what depreciation has a banker, capitalist, or hoarder to debit to the money in his possession or on loan ? By how much was the war-chest in the Julius Tower at Spandau diminished in the course of the 44 years that it was stored there ? Not by one penny !
That being so, the answer to our question is clear, we must subject money to the loss to which goods are liable through the necessity of storage. Money is then no longer superior to goods; it makes no difference to anyone whether he possesses, or saves, money or goods. Money and goods are then perfect equivalents, Proudhon's problem is solved and the fetters that have prevented humanity from developing its full powers fall away.