The things which surround us have each very many functions. In trying to understand their true nature, men following different lines of study consider them in different aspects, and group them into classes according to these aspects. Thus a botanist, going into a garden, looks at the flowers, shrubs and trees and, for the purpose of his science, classifies them into families and species. A chemist going into the same garden would not see flowers, shrubs or trees at all, but see combinations of the elements of oxygen, hydrogen, carbon and the like. His classification would, consequently, be very different from the botanist's. The economist would view the same garden in yet a different way, for he would see land, labour, wealth and capital.
It is important that from the outset the things which together make up the universe should be classified according to their several economic functions. In defining each class, each "factor" in the life of a community, care must be taken not to confuse together, as though they belonged to one factor, things which operate differently in social economy. Clearly, if this confusion is allowed, further confusion will follow when an attempt is made to trace the effect of each factor through the pattern of social relationships. Conversely, unnecessary difficulties must ensue upon dividing into two classes, as though they belonged to different factors, things which are alike in their economic operation: to make distinctions where no differences exist always leads to useless subtlety. In short, the definition of each factor must be exhaustive, in that it includes everything having the same economic function; and exclusive, in that it does not include two things having different economic functions.
To each factor, as it is defined, a name will be given: and thereafter the selected word will be used solely to mean the factor to which it will have been attached, and will not be used in any other sense.
The first great factor is the natural resources of the universe. Abundantly different as are the forms which they take, all have the same economic purpose and display the same peculiarities. Together they constitute the storehouse from which man draws all he possesses. Year in and year out, unless disturbed by man, they remain or reproduce themselves in numbers and quantities so nearly the same, that only after very long periods have elapsed can any substantial change be noted. Man may discover new possibilities in these resources, but he cannot add an ounce to their weight. Indeed it is the secret of their creation which baffles science and is the subject of disputes among religious teachers. To them, men must daily return for both the necessities of life and its luxuries and refinements.
These natural resources are known in the language of economics as "land". The word land, used in this sense, includes, not merely the minerals which lie in the earth, but the wild beasts and birds which live upon it and the oceans and waterways which flow in its hollows. It may be defined as "all natural resources exterior to man himself". The use of the word in this broad and sweeping sense is not peculiar to economics. For example, in English law a man's land includes "all that lies beneath the surface down to the very centre of the earth and all that rests upon it even up to the heavens".
Thus, in England, if straight lines are drawn from the centre of the earth passing through the boundaries of a man's estate and on up to infinity, all that by nature lies between those lines is that man's land. This was the reason why the Air Navigation Act, 1925, was passed. Before its passage, according to this conception of a landowner's rights, aeroplanes passing through the air over the surface of a man's land, no matter how high, were trespassing.
This view of a landowner's powers, adopted by lawyers and economists, is not the product of a fevered imagination, but is the appreciation of hard facts. Man by his nature must operate from the surface of dry land. If he penetrates below the surface, as in mining, he must frequently return to it. If he flies into the air, he must land again. If he sails across the oceans, he must return to port. It has been said that the highest which a man has ascended into the air, added to the deepest he has penetrated into the earth, are to the diameter of the earth but as the skin of an apple to its diameter.
The man who controls a piece of the earth's surface effectively controls all the natural resources to which access may be had from that point. If one person owns all the land which in a particular part of the world is suitable for airfields then he effectively controls the air routes concerned. This is a common lesson of war. Should one party gain the land suitable for airfields, then the aeroplanes of the other are of little use. Again, control of the land suitable for ports will give command of the oceans. Should a company have control of all the land suitable for ports in a given area, then clearly that company could quickly gain control of the exporting industries whose products must pass through the ports. That is why Governments have found it necessary to limit the powers of port owners and compel them to accept all goods and ships upon payment of a fixed scale of dues. Where such governmental control has not been exercised, then the exporting industries have inevitably become dependent upon the port owners. Again, there are many parts of the British coast where holiday-makers who would enjoy the air and sunshine must pay a toll to the landowner for the privilege, for he controls the salt air and warm sun. It is for these reasons that the law recognises that the man who has the control of the surface of the earth controls all that lies below it and all that, by nature, rests above it, even to the sunshine which plays upon it and the winds which blow over it. For the same reason, economists, by very nearly universal consent, a most remarkable condition, have called these natural resources "land".
As has been said, the natural resources are the first factor in our economic life. In this book they will be called "land" and the word will not be used in any other sense.
In this book "land" means all natural resources.
"A man's land" means all the natural resources which the man controls by reason of his ownership of part of the earth's surface, or by reason of the rights which he possesses over land occupied by others.
Without land there would be no human existence; but the earth and all its riches will not maintain human beings unless they work. Man's life and progress are dependent on the direction he gives to his activity, and the energy, skill and knowledge he puts into it. This human element in life may be considered from two aspects: the motivation which starts and gives direction to it, and the work itself.
It does not lie within the scope of this enquiry to probe into the inner workings of the human being; to enquire how far his wish to live in a particular manner, or to marry according to particular rites or rear children in particular ways, springs from his native genius or from the tradition of his race, the customs of his time or the instruction of his teachers. Whatever the springs or sources of his actions may be, they will flow together, intermingle and formulate themselves in his conscious mind as his desires. Desires are the beginning and their resolution the object of all human activity. No sooner is one of them gratified than another comes in its place. Human desires are the second great factor in social life. They may be in turn, generous or mean, wise or foolish, but in each case they will rule the conduct of a man or woman and, at times, will guide the conduct of the greater part of a nation.
Fortunately it is not necessary to define what is meant by "human desire", for though it would baffle definition everyone knows what he means by it.
Most people desire to live, but man cannot live unless man works; his life and progress are dependent upon his energy, skill and knowledge. These last form the third great factor in economic life. They are the human and individual contributions to life and in this book will be called "labour". It is by this application of human energy to the natural resources of the world under the direction of human desire, by labour applied to land in order to gratify human desires, that man lives. From these three factors have risen a hundred empires. Without their interaction man would not be. For him they are the daily support of life. Land must be constantly tilled and sown, quarried and mined, and men must wish to do it. Were this continual work upon the natural resources suspended for a short time, famine would afflict the world.
For some reason which seems to have no scientific foundation whatever, it has become popular to distinguish between different occupations as though they were different in kind. Thus organization, which is clearly part of human effort, has been classed apart from all the rest, and the reward for organization has been dignified by the special title of "wages of superintendence". It is a little difficult to see why this should be done unless it is an attempt to justify the undue reward which under modern conditions goes to those holding high directorships or whose occupation is company promotion. Apart from any other considerations, these occupations are not of such an importance as would justify their being put on a higher plane than the work of the scientist, the engineer and the scholar. In truth, differences between occupations may call for different degrees of ability, knowledge and skill, but clearly the difference is one of degree and not of kind. All useful human exertion in our economic life serves the same purpose, which is either to make the things or do the things which will gratify human desire. Every occupation, however menial, requires some knowledge, some skill and some power of organization. All perform the same function and all are labour.
In this book the word "labour" means all human effort.
Land, human desires and labour are the three primary factors in economic life. On them all else depends. This has always been and, so far as we can tell, always will be. This rule applies in Russia as it does in England; in China as it does in America. No differences in human outlook, and no human devices can change this elementary truth. Obvious as this is, yet, as will be demonstrated later, it is just such elementary truths which are ignored in daily practice. The inevitable sequel of this is that in every part of the social structure difficulties arise which seem to have no relation to each other upon a superficial view, but which really result from the denial of truth.
Man is utterly dependent on land, human desires and labour, but of the three land must come first. Obviously, labour could produce nothing without land and under such conditions labour would quickly cease to exist. On the other hand, land is in no way dependent on labour. Some power greater than man must account for its existence.
To sum up, human life requires first the land, then desires to gratify, and finally the application of labour to land. This is a universal truth which knows no exception.
The multitude of things which man may win from the earth by the cunning of his crafts is truly wonderful. By their agency he constantly expands his powers to make and to do, so that there seems no limit to what human ingenuity can perform. Even daily use and long aquaintance seem unable to dull man's wonder and delight at his own achievements. When man makes anything, however, the product of his hands differs in many important respects from the land from which it came. These differences are of fundamental importance and set very definite limitations on man's activity. They may best be illustrated by taking an example of man's products, such as a loaf of bread, and contrasting it with the natural resources from which it came.
First it is apparent that without the land there would be no bread, whereas without bread there certainly could be land.
Next, without labour there would be no bread, but labour is not required for the existence of land, on the contrary labour is dependent upon land.
Again, as soon as the loaf is complete, it begins to moulder and decay. Land, on the other hand, if left undisturbed by man, goes on for ever. The great primitive forests and the little woods, the giant rivers and the little streams, the animal, bird and fish life continue year in and year out as they have always done. True, there are in progress great changes, but these are slow in their operation and dominated by forces which as yet man cannot understand. However, though the forms change, the life and energy locked in them go on. So soon, however, as man interferes with the natural balance, forces come into play which tend to restore it. Processes of decay put a limit to the life of man's products as though Nature were reclaiming that which she has allowed to be taken from her. In consequence of this, man must constantly be repairing and replacing that which he makes. He may devise means of protecting his manufactures from destruction, but these very means must be maintained by constant effort. Thus with refrigeration, the power must constantly be supplied to maintain the required temperature and the refrigerators themselves must be kept in repair and working order.
Lastly, there seems no limit to what man may produce from the land provided he has access to it. If he lacks bread, he may make more loaves. He cannot, however, increase the natural resources in the smallest degree.
From all this it is clear that these things which man makes and which are the means of his existence must be set aside in classifying the factors of our life and put under another heading.
In this book the great family of human products will be called "wealth".
From what has gone before it is clear that these things, which are called "wealth" in these pages, must not be confused with the land from which they came, or with the energy, skill or knowledge which gave them birth. Land is not wealth. On the contrary, it is the source of all wealth - something which must come before wealth can exist. It is one, and only one, of the factors in the production of wealth.
Much confusion seems to arise because, it is said, a man who owns land is wealthy. A moment's thought will show, however, that it is not the land which makes him wealthy, but the things he obtains from it or in exchange for the use of it. By such means he may acquire food, clothing, houses, cars and the like. If, though he has the land, he can obtain none of these things, he will die. It is not the land that makes him wealthy but the things he acquires from it. If he has a house it will shelter him; if he has food he may eat it; if he has clothes he may wear them; but land of itself, unless he works or someone else will work for him, will provide none of these things.
So it is with skill and knowledge. No one would say that a highly skilled architect beggared in unemployment is a wealthy man. If he cannot, or does not, turn his skill and his knowledge to the acquisition of the means of life he is a poor man indeed. Skill and knowledge are not wealth. They are not even "potential wealth". They are human attributes. In use they are part of labour; idle, they are of no avail.
Another notion which is barbarous and ill-founded, but which has found much countenance in economic thought, is that slaves are wealth. Are men to be confused with cabbages? Slaves are men, just as are landowners and labourers, which is reason enough, one would think, to distinguish them from the inanimate creations of man's hands. The sun warms them as it does other men; frost chills them; hope buoys them up and fear makes them despondent. They respect their parents, love their children and revere God as do other men. Are these unfortunate creatures of God to be classed together with the senseless machines grinding their iron jaws in our factories?
Doubtless all these confusions have come from a definition of wealth which is now generally taught, but which pays no regard to those elemental differences which mark out from one another the great classes of things which make up man's economic life. This definition states that wealth is anything having value, which usually means in such writings anything that can be sold on the market. Certainly land has value, slaves have value, man's creations have value and much of all this can be sold on the market. It would be surprising if it were otherwise. Anything that man desires can usually be sold on the market. Obviously, he desires the land without which he could not live. Men there will be who desire to have slaves, for then they can live without working. The reasons, however, which lead men to desire these things are different and reflect the differences between their economic functions. It it these differences which are of importance and which must be kept in mind if a true understanding of economic life is to be obtained.
Treasury notes, the King's coinage, bank bills, mortgages, bonds and promissory notes all have market prices. They are commonly thought of as wealth. If, however, all these documents and coins were reduced to so much paper, ink or metal, the amount of wealth in the world as a whole would clearly not be lessened. Conversely, if two men were to sit up all night writing each other cheques and bills of exchange, making out bonds and mortgaging their property, the amount of wealth in the world as a whole when at last they retired to bed would not be greater by the tiniest fraction. If, then, to destroy all these instruments is not to reduce the total amount of wealth in the world, and if to create them is not to increase it, then clearly they are not wealth. They are certificates of title. That is all. They are documents which are evidence to the world of some right or title vested in their owner. Clearly they are useless unless they can be turned into bread and butter, turned into wealth. They are not in themselves wealth.
To sum up: land is not wealth; labour is not wealth; slaves are not wealth; and bank bills, mortgages, bonds and the ordinary coinage of the realm are not wealth.
Before there can be wealth there must first be land. That land must be worked upon by labour to produce the things by which man lives. Not all the products of labour applied to land can, however, be classified as "wealth". Regard must be paid to the thing produced. If in some idle moment a man goes upon the seashore and makes some mud-pies, not because he wants the mud-pies but simply for the pleasure of making them, then the mud-pies he makes are clearly not wealth. He does not want them - nobody wants them. If, on the other hand, it is discovered that these particular mud-pies are good for the complexion and are made for that reason, then clearly they are wanted; they are wealth. In short, a distinction must be drawn between those things which man makes but which, when made, gratify no one's desire, and those things which do gratify someone's desire.
It is to be seen, therefore, that before an article can be wealth it must satisfy three requirements. It must first have been land, must then have been worked upon by labour and the product must gratify human desire. The fact that the making of the thing gratified someone's desire, as was the case with the mud-pies first mentioned, does not make the product wealth. The product itself must gratify human desire.
It of no consequence that the thing produced could not be sold, provided that it does gratify someone's desire. Robinson Crusoe's pallisade and cabin were wealth though there was no one to whom he could have sold them. The notion that an article can only be wealth if someone can be found who would buy it comes from the superficial notion that economics is only concerned with the exchange of goods. In truth, it makes no difference whether a man makes chairs for his own use or whether he grows cabbages and buys the chairs with them. The result is the same. The chairs are wealth.
"Wealth" may now be defined as land modified by labour so as to fit it for the gratification of human desire.
Wealth is made so that it may gratify human desire. Not all wealth, however, is used for the immediate gratification of desire. Thus a steam engine in a factory is wealth. It is land modified by labour so as to fit it for the gratification of human desire. It is not, however, used directly for this purpose as is the food on man's table. Instead it is used to produce other things which in their turn will meet a human want. In short, it is wealth used to produce more wealth. Wealth so used, performs an economic function different from all other wealth, and must therefore be put in a class by itself. This class will, in this book, be called "capital". The distinction between wealth which is capital and wealth which is not capital is one of use. Thus a car used for pleasure is wealth being devoted to the immediate gratification of desire. A car used in business is wealth being used for the production of more wealth and is capital. It is true that many forms of capital, such as a steam engine in a factory, could not be very well used for any purpose except the production of more wealth. But what matters is not the form which the wealth takes but the use to which it is put.
To include in the factor called "capital" anything which is not wealth is a mistake which leads to great confusion. By so doing, things of different economic functions are confused with each other. For example, land is not capital and can never be capital. Had there been no land there would be no steam engine, but if there were no steam engine, it certainly does not follow that there would be no land. Again, if there were no labour, there would be no steam engine. Land and labour must exist before it can come into existence. More than that, if labour were not being constantly applied to land the steam engine could not function. If miners were not daily winning the coal from the earth to fire the furnaces, the steam engine could not operate. If other miners were not boring the earth to obtain oil to lubricate the engine's moving parts, it would soon seize up. If yet others were not ploughing up the earth's surface to dig out the iron ore to replace the engine's worn parts, its life would be short indeed. Thus, capital is not merely brought into existence by the application of labour to land, but is for the most part dependent upon daily work upon the natural resources to keep it in operation. Therefore, land must not be confused with capital, nor must labour, skill or knowledge.
Still less should money or stocks and shares be called capital. They are, as has already been said, mere evidence of title. Doubtless accountants find it convenient to call money capital as for the purpose of their profession everything is reduced to pounds or dollars or as the case may be, but their figures are not capital. They can trick with the figures - and many are deluded by them - but hard work must create and maintain capital. The true nature of money and of these titles to things will be discussed later in this book. It is sufficient here to observe that they are not to be confused with the stocks of grain, the herds of cattle, the coal, oil and machinery which are capital when used to produce more wealth.
In this book "capital" will mean wealth used to produce more wealth.
As has been seen "Land" is all natural resources. Human desires need no definition. "Labour" is all human effort. "Wealth" is land modified by labour so as to fit it for the gratification of human desire. "Capital" is wealth used to produce more wealth.
The primary factors in social life are land, human desires and labour. On them all else depends. Wealth is a secondary factor, being itself produced by the primary factors. Capital is part of wealth. The principles governing the relations between these economic factors are universal and govern all social activity in the economic sphere.
As with wealth, great confusion of thought reigns over the question of capital. Wealth having been defined in many current treatises as anything having value, meaning thereby a market price, capital is defined as anything that yields a revenue. Such a definition results in bringing under the same head land which is let out at a rent, skill and knowledge which procure incomes, mortgages and stocks and shares and loans of money. In short, everything that is used in industry if it brings a return to the owner, is lumped together as capital. The very different nature of these things and the very different principles which govern the return the owner obtains for them are thus clouded over. Such confusion leads to the current use of vague and indefinite terms such as "the capitalist system". Some, seeing in this so-called "capitalist system" the exercise of economic privilege and the exploitation of the many by the few, inveigh against it. Others, seeing in the same system the opportunity for enterprise and a reward for honest effort, rally to its support. It is self-evident that the contending parties are not talking about the same thing.
Upon a clear realization of the nature of the different factors in operation and of the principles which govern and which have always governed them, this confusion melts. Obviously the control of land gives the owner very different powers from those acquired from the power to work. The control of wealth gives yet different powers which are deeply affected by the nature of wealth itself. To the control of money still other powers belong. It is intended in this book to examine the powers acquired by the owners of these very different things and by the benefactors of other powers yet to be noticed. One man may exercise powers as a landlord, powers as a labourer and powers as a controller of wealth, and it will be necessary to assess the very different results of these very different powers. The fact that one man is at once landlord, labourer and controller of wealth must not be allowed to hide the fact that he enjoys powers which are very different in their economic strength and results. Some of the powers he exercises may do harm, while other do good. To condemn him outright is the action of blind envy. In no other sphere is it more important than in social relationships that jealousy and malice should play no part. The principles which should guide the student should be those of justice, which are the principles governing the very nature of our social relations.
It is relevant at this point to observe that the production of wealth is not completed until the goods are in the hands of the ultimate consumer. Thus when fish are hauled into the boat from the fishing grounds of the ocean production has only just begun. It is not complete when they are landed at the port, nor yet when they reach the wholesaler's storehouse, nor again when they are sold in the market to the retailer, nor even when they find there way into the housewife's shopping basket, but only when cooked and served with some delicate sauce they whet the appetite of some hungry mortal. The cooking and serving are part of the production of wealth and the saucepans and frying pans are capital. The housewife along with the merchants, the retailers, the railway companies and the fishmongers are all concerned in the production of wealth. Much of the production of wealth consists only of the moving of a natural product from one place to another. All the way from the coal face to the domestic grate the coal remains the same in form, for its production is not only the winning of it from the earth and the sifting of it from impurities but the transportation of it to its ultimate destination. Thus the coal won from the face by the hewer is wealth but its production is not complete.
A few illustrations will serve well to sum up the important differences between land, labour, wealth which is not capital, and wealth which is used as capital. A herd of wild bison is land. Year in and year out if undisturbed by man they continue in much the same numbers for very considerable periods of time. A herd of cattle on a farm is wealth. Unless they are constantly cared for, artificially housed and protected from disease and natural enemies they will quickly die off. The more highly cultivated they are the swifter is this decay. In the same way a wild cherry tree is land. If undisturbed by man wild fruit-trees in a wood maintain their numbers. The trees which are cultivated in orchards, however, and which yield such magnificent fruit need constant care and attention unless they are to be blighted and to lose their fruitfulness. Both cattle and orchards, being wealth used to produce more wealth, to yield beef or milk or fruit, are capital. The domestic dog, however, or the flowering shrub in the garden, not being used to produce more wealth is not capital.
Land, labour and wealth are for this purpose words of art and will be used to describe the economic factors which have been defined.
Those who control one or other of these three factors may by means of this control be empowered to claim a share of the wealth produced. For each of these shares it will be necessary to use a technical term and for this purpose the usual words will be used.
The full discussion of these avenues of distribution belongs to the discussion of the distribution of wealth and will be postponed until then.