IV Wealth is Exchange

IV WEALTH IS EXCHANGE IT is to Karl Marx that we owe the popularity of the theory that wealth consists of labour applied to land. From this profit is supposed to .accrue, and the notion has been elaborated and developed until the most serious economists now find themselves discussing what is called the " Surplus ~roduct." The work of Marx was done so well that most people more or less accept the idea that the working man, with his hands, makes a piece of wealth which is then sold at something more than the price charged by the .workman, the difference being the surplus, and the distribution of this so-called surplus has formed the theme of many lengthy and weighty ,volumes. The extraordinarily lop-sided way in which the discussion has developed is perhaps due to the fact that all parties will insist on concentrating their attention upon the position of the wage-earner and limiting the discussion to that issue only.

Mr. Sidney Webb brought the Marxian theory up to-date some thirty years ago by the historic admission that labour might be done by brain as well as by hand. So we have wealth defined as "land plus labour by hand or brain." But we still continue to argue and debate about the mythical surplus which, under what is called" Capitalism," is supposed in some mysterious way to be filched from its rightful owners-' the pos sessors of " labour power."

WEALTH 18 EXCHANGE 55 Ifit were true to say that wealth is composed of land and labour, it would be equally true to say that music consists of catgut and horsehair, or that literature is comprise~ of paper and ink. John Stuart Mill, whom scarcely anyon~ reads, owing probably to the fact that he preaches no revolution, defines wealth as "all things useful and agreeable having exchange value." That is, in my opinion, the most concise definition of wealth yet enunciated. I would like to simplify the definition still further to the threewords\lwith which I have headed this chapter. Such a definition would not contain the whole of the truth, hut it would be a very great deal nearer to the truth than the Marxian formula of land and labour. I propose to show that exchange is the very essence of wealth, and that land, labour, brains, and many other elements that are found when a close analysis is under taken are all of small importance compared with this in tangible ingredient expressed by the word "exchange."

It does not matter one little bit what may be the . system under which we work, what it is called, or how it is devised; nothing can ever alter the fact that if we wish to be civilised we can only live by the will of others, who are willing to give us those things which we require in exchange for something which we have to offer. This rule is of universal application. The journalist who writes may produce stories by the ton, but they will bring him no benefit unless he can per suade other human beings like himself that some advantage will accrue to them from the reading of his stories, and that the advantage is worth some share of their possessions. The doctor who takes a fee of £100 for performing a special operation, which occupies him for thirty minutes, is only able to effect such an ex change because the person upon whom he performs is willing to assess the thirty minutes' effort of the doctor 56 THE CONFESSIONS OF A CAPITALIST . at a value that may represent as much as six months' effort on the part of himself. It is true that some, with greater skill in the arts of exchange, are able to make bargains more profitable to themselves than o~hers, but when it does occur that some detail of this great process of exchange is arranged in such a manner as to bring an undue advantage to one of the parties, the quickest, surest, and most. effective. remedy for any injustice thereby inflicted is public knowledge, which has never yet failed to 'bring numerous other men into the same market and so reduce' the' terms of the extortioner as to bring the transaction rapidly down to a normal and equitable level. If the doctor's £I 00 is, in the light.of public opinion, too high, -. there will be a widespread desire on the part of young men and women t9 'enter the medical. profession. If, on the other hand, it is thought to be an inadequate return for the trouble of learning how to bea doctor, students will be discour aged, and there will be a shortage of doctors. It is all a question of exchange.

There has recently been a correspondence in the newspap~rs in which it has been argued that, if it is a true statement that wealth is-exchange, then there can be no such thing as a profit; the contention being that, if exchange is fair and equitable, neither party benefits. at the expense of the other, and neither makes anything that can be called a profit. To be satisfactory such a discussion would have to be founded upon an agreed definition of profit, which might turn out to .be nothing but our old' friend " saving." If two men exchange an hour's work and one consumes all that he receives while the other saves half of what he gets, do they both make a profit? It is all.a question of what is meant by the word. Leta man work by himself on a desert island, and produce day by day rather more than. he consumes, thus gradually amassing buildings, WEALTH IS EXCHANGE 57 implements, and clothing; he will be making a. profit just as surely as the merchant who sells an article at a price which ·leaves him something over and above the actual cost of production. If there be two men on the island who arrange to exchange with one another clothing for buildings, or food for fuel, they each undoubtedly profit from the transactions. If a third man facilitates their operations by conducting the excliange on their behalf and retains for his services a portion of the goods exchanged, he also, like the other two, enjoys a profit. It is an entir~ misconception to suppose that profit is an illegitimate addition to a price.

In a free market, under a system of free competition, nothing is contributed to the general service of the community so' cheaply as that essential element known as a profit. Should any reader feel a doubt as to my definition that "wealth is exchange," or still feel inclined to favour the idea that land and labour are the essence of wealth, I invite him to go through a very simple mental exercise. If you will select some trifling commodity, some little piece of wealth, and devote your mind for thirty seconds to thinking of it, the process will help you to follow my argument. Take, for instance, the collar that you are wearing, and examine it closely. What is it? How was it made? Where did it come from? You will find that you bought it in the Strand, Lon don, for a shilling; that it was made in Leicester, with machinery, some of which came from Manchester, some from the United States, and some from Ger many; that it is composed of Irish linen manufac tured in Belfast from flax grown in Russia. So, within thirty seconds you have travelled round half the world; you have been brought up against the problems of iron, steel, coal, transport, and power, .

58 THE CONFESSIONS OF A CAPITALIST and, most wonderful and complicated of them all, credit banking and finance. When you pause to consider 'that in some miraculous way a part of the shilling, which you paid in the Strand for the collar you are wearing, operates to provide the , peasant in Russia, who reaped the flax from which the collar is made, with a cup of tea from China or a cigarette from Cuba, you get an elementary insight into the complications of this thing called" wealth," which Karl Marx so glibly argues is brought to our service by the effort of the manual labourer. Examining more closely this simple little train of cir cumstances surrounding your own collar, you will notice that unless the peasant in Russia were able to get the cup of tea from China, you would to this day be without your collar; and these considerations should bring you to the conclusion that the girls in L~icester who iron collars might be prepared to iron for genera tions, that the labourer in Belfast who unloads the flax and loads up the linen might push bales about till Doomsday, but no collar would ever appear upon the scene. Similarly, the peasant in Russia might grow flax till it filled the' Universe and still there would be no collar. Land, in this case represented by flax, and labour, represented by hundreds of persons involved in dealing with the odd things that eventually come together in the form of a collar, are the most unim portant details compared with the genius of organisa tion and foresight which, through the centuries, and thanks to the operations of free exchange, have made it possible for all these agencies to fit into each other and enable you to possess a collar which, incidentally, would take you weeks to make yourself and would then be a very poor collar.

The essential benefits conferred by the operations of exchange are seen also very plainly when we consider WEALTH IS EXCHANGE 59 the position of the poorest man among us. Were he to devote himself to work for twenty-four hours every day and for seven days of every week, and continue in this way for the whole of the seventy years of his life, he could not of his own effort and with the aid of land C\vhich,of c~urse, means everything "that comes out of land) make by himself a tithe even of the trifling things which he possesses. It would take him a week to carve out the piece of bone necessary to make one of the buttons which help to keep his poor rags together. Thanks to the wealth-producing power of exchange, even the poore,st of us receives far more than a sing Ie individual could ever produce. Owing to the highly-developed state of our civilisa tion, this exchange business is becoming so complicated as to be obscured and hidden from the great majority of people. It is, for instance, a little difficult to believe that when I write an article which appears in a Chicago newspaper, I am in fact exchanging my article for a hat which was made at Denton in Lancashire. But that is a fact none the less, and, were it not for this essential thing called " exchange," and the wonderful way in which the machinery of civilisation has perfected it, neither the article nor the hat would exist, and no wealth, in so far as either of them can be described as wealth, would come into being. The man in Denton who makes my hat declines point-blank to read my compositions. The Chicago man, on the other hand, would not be seen dead in the hat which the Denton man makes. But those difficulties-very natural and proper difficulties-are overcome by the system of free exchange, a system under which I am able to find, 5,000 miles away in Chicago, those with the peculiar type of intellect which appreciates my articles, and gain for myself in return a little bit of the produce of Chicago ~ represented, probably, by wheat, which I am able to use 60 THE CONFESSIONS OF A CAPITALIST .

in a manner to satisfy the man in Denton, who is thus willing to give me a hat. Bastiat puts the exchange theory thus, in very simple terms: "Does the farmer make his own clothes? Does the tailor produce the corn he consumes? Does your housekeeper continue to have your bread made at home after she finds that she can buy it cheaper from the baker? Do you resign the pen for the brush to save your paying tribute to the shoeblack? Does the entire economy of society not rest" upon the separation of employments, the division of labourin a worq, upon exchange? And what is exchange but a calculation which we make with a view to discontinuing direct production in every case in which we find that pos sible, and in which indirect acquisition enables us to effect a saving in time and effort?" 1 The business man is the agent of exchange, and, because it is, as a rule, far more difficult to exchange an article than to make it, the business man generally secures a higher remuneration for his part in wealth production than the labourer who performs the simpler and easier work of wielding the hammer or the saw. .

One justification for this lies in the fact that exchange involves" risk, and the recognition of this element of risk is of primary importance. "Let me give an illus tration. A man sets to work to make buttons. His object is to earn a liv.ing, which is another way of saying that he intends to serve his. fellow"':creaturesby exchanging with them buttons for other commodities. We have already noticed that it would take each one of us several weeks to carve out the pieces of bone forming the buttons upon our clothes. Our button.maker therefore puts down a machine which is calcu lated to make a million buttons per annum for the next ten years, and he thus begins a process of exchange "I SophismesEcottomiqu;s.

WEALTH IS EXCHANGE 6r which will not be completed until the ten millionth button· is made and stitched on to somebody's shirt ten years hence. But who can say that in ten years' time anybody will be willing to accept and use this particular type of button and put upon it the value which it is calculated to possess at the time when the maker first instals his machinery? That simple illustration brings out the element of ri$k in the exchange which takes place between all the individuals concerned in the making of the machine and the man or woman who ten years later gives of his or her goods or services to secure one of those buttons. A normal piece of exchange often takes ten years, and the services rendered by the persons who take the risk involved in that lapse of time form a very essential part of the process of wealth production. It is not merely. lending money for ten years. That is a ques tion of interest and is comparatively simple. The risk factor is quite a different consideration.

On this risk factor hangs the real case for private enterprise. The fact is that a very large proportion of these risks are bad risks. It happens as often as not that at the end of the ten years the button market has changed. The button made by the ten-year-old machine is no longer acceptable, and ~a loss is in. curred. Others cannot be found willing to give of their goods and services in exchange for it. Thus a large proportion of the machinery or apparatus put down for the making and exchanging of things ten years ago is lost and wasted, and the individuals who have carried that risk have lost their money. On the other hand, of course, it sometimes happens that the risk which is carefully calculated for ten years turns out better than was expected, and the owner of the button-making machin~ry may be reaping adv~ntages 62 THE CONFESSIONS OF A CAPITALISTfor twenty, thirty, or forty years, securing perhaps a return of many hundreds per cent. for the risk he has undertaken.

When all these good and bad risks are puf together, it is known that the reward in the aggregate is a modest one. Before the War, capital, as a whole, secured a return of 4 per cent., which represented a mean result of big and little gains and big and little losses. Here we have a powerful argument against the theory of nationalisation, or State trading, and a strong reason why private enterprise must be the only agency through which we can conserve wealth and secure further pro gress. If we were citizens of an all-providing State which undertook the manufacture and marketing of our requirements, we should have the right to call upon the State to undertake the risk, either good or bad, involved in carrying out our individual ideas, whether in the making of buttons or the produ<;tion of newspapers. It could not decline to give to every citizen his right to have his ideas developed. The check on the exploitation of bad risks provided by the possibility of personal loss is the only check which can save us from complete and utter bankruptcy; for, notwithstanding the fact that the rate of indulgence in risky transactions is diminished by the powerful deter rent contained in this fear, we still run risks which involve serious private loss an'd fail to balance the gains to any appreciable extent, and are only able to save the modest 4 per cent. upon the capital of the people as a whole to provide for further development.

Buying and selling in business is not quite so simple an operation as may be thought by the uninitiated. A newspaper enterprise provides a good illustration of the modern workings of exchange and shows in a striking way how all parties can benefit, even when exchange may appear on the surface to produce a loss. As an WEALTH IS EXCHANGE example of what really happens I may be allowed to cite one of the weekly trade papers which I publish, The Cabinet Maker. A house-furnisher pays me 25s. a year to secure fifty-two weekly copies of The Cabinet Maker. In return for that 25s. I supply him with 50S. worth of unprinted paper. The paper which he re ceives in the form of his weekly organ. before any print has been put upon it or any work applied to it has actually cost me 50S. The same subscriber will receive in postage stamps upon the wrappers the equivalent of lOS. in the course of the year. During the same period I have to pay to printers, photo graphers, block-makers, artists, and many other people, to say nothing of editors, an average of £3 per sub scriber, so that in respect to the house-furnisher who pays me 25s. I actually pay considerably more to other people for goods and services which I pass on to my subscriber; no doubt can therefore be entertained as to the benefit which my subscriber derives from this little piece of exchange.

The other half of my business is done with the advertiser, who pays me £I a to have his announce ment printed on a page of one week's issue of The Cabinet Maker. If that advertiser were to decide, instead of using a page of The Cabinet Maker, to make his announcement in his own way through the medium of a circular, he would pay for paper, printing, postage, wrappering and addressing something nearer £25 to reach the same people. There can be little doubt, therefore, that the advertiser derives great benefit from exchange with me in this particular way. Seeing that some thousands of these advertisers think it worth while to pay me £1,200 a day for this kind of service, and that some of them have for over forty yeat;s been doing the same thing, and are doing it in increasing quantities, the evidence of my own business would 6+ THE CONFESSIONi OF A CAPITALIST appear to be conclusive that the exchange, as far as the advertiser is concerned, is a satisfactory one.

And yet out 'of these two apparent losses I make money. My loss to the subscriber is actual, defip.ite, and heavy. The newspaper proprietor does really.lose on every reader that he secures. Yet he goes on devis ing new ways of securing new readers on whom he can lose more money. The loss on the advertiser that I have described is not real, because _an actual profit is made by putting together the announcement of a number of advertisers and printing them all at once. A-successful newspaper therefore provides a good example of the way in which exchange brings profit and advantage to all the parties concerned. The more the exchange, the more the wealth; from . which it follows th~t freedom of exchange is vital to our well-being .. The reader who can accept this view of things will be led with me to a deep conviction that not only is Protection, with its international obstruc tions and obstacles, a destroyer of wealth, but that all obstacles to the free flow of exchange must operate to limit the quantity of wealth available for the use of all.

The wealth destroyed nowadays by the activities of trade unions and trade associations is the most dis tressing and appalling fact in the economic situation. Not a very pleasant reflection for one who professes to believe, as I profess to believe, in organisation and co-operation. The pitiful truth is, however, that we human beings do not seem able to get together for the . purpose of doing "things. As soon as a dozen of us meet as parish councillors, or as trade union delegates, we proceed at once to make arrangements to prevent things from being done. If trade unions and trade associations' were to devote their brain power to speed ing up the exchange of goods and services, they would WEALTH IS EXCHANGE be of enormous benefit to mankind; but, since they prefer to throw the bulk of their energies into ~he restraint of production and the hindrance of exchange, they are to-day grave dangers to the commonweal, and ar: robbing the world of untold wealth which it might enJoy.

Exchange must be free if we are to get the best out of it. There must be no force behind it other than the force of individual desire. There can be no satis factory exchange between the private individual and the bureaucrat, for instance. Each one of us must be quite free to make, or decline, the exchange at his pleasure. Only so can we guarantee that exchange will be fair and equitable, and that there will be bene fit on both sides. That is one of the reasons why governments cannot trade. It is the absence of free dom which makes the Post Office, little though people realise it, one of the scandals of the age. There is probably no remedy in the case of the Post Office, but it is as well that we should recognise :what are the true facts, so that we may avoid the error of repeating the waste and loss of our postal arrange ments in connection with our mines, railways, or food. When the free citizen approaches the counter of a Post Office for a I d. stamp, he is tied hand and foot in the bargain which he contemplates making. He cannot go elsewhere. He cannot compare the value offered with any other. He must give of his wealth exactly what is demanded, if he would have the benefit of a postage stamp.

It always an1uses me to hear the Socialists hold up the Post Office as a model of the blessings we should enjoy under State trading, and it is a matter of some surprise to me that so little effort is made to analyse and -examine this supposed blessing. The truth is that the service rendered by the Post Office will not stand E 66 THE CONFESSIONS OF A CAPITALIST comparison with the service rendered by private en~rprise. My business as a newspaper proprietor brings this out fairly clearly. In Fleet Street we collect· the news of the two hemispheres in a matter of a few hours, put it into readable form, print it, and distribute it over the country; and for a modest penny the individual is provided at his breakfast table with full information of the happenings of the world up to midnight on the previous evening. But if the Fleet Street worker wants to send a letter to his sister in Bedford, he must write it, pay the 'Postmaster-General Ild., and put it in the appropriate box. at the appropriate Post Office, all before 5.3° p.m. in order to get it to his sister in Bedford half an hour after the story, which is at that time on the telegraph wire from China, has been received, written, compos~d, printed, packed, distributed, and delivered at the same address in Bedford for two-thirds of the price which the Post Office demands for the mere act of delivering the letter. .

The absence of the benefits of free exchange is further brought out when we consider the tel~phones, in which connection this great country, which o,nceled the world, .is quickly becoming the most backward place on earth, for this simple service costs more and more year by year as the <?overnment monopoly grows more and more oppressive. The appalling fact that the unhappy makers of tele phones have recently been obliged to form an .associa tion to educate the public in the use of the. instrument and overcome public •prejudice against bureaucratic incompetence, shows the depths to which we can sink when we neglect the essential principle of exchange. We have fallen into the habit, by forgetting exchange, of looking upon work as an end in itself instead of as a means to' an end.W e think of a job as something WEALTH IS EXCHANGE we want for ourselves, forgetting that its only excuse is to supply the needs of others. If all of us who are employed would ask ourselves the question: "Are we giving good value; are we making fair exchange; are we creating in the breast of the consumer a feeling of satisfaction, a desire for more; are we rendering good service? " and if we would allow this spirit to govern our work, we should not only be assured of the security of our own employment, but be creating employment for others.

When a woman enters a shop and puts down a shilling, taking away an article, if she says to herself: " This is a satisfactory transaction;· I am very pleased with what I have got; I think this is a good shillings worth," she tells others about it, she comes back for more as soon as she can, and thus trade is promoted, exchange is developed, business is good, and employ ment plentifuL If, on the other hand, when she puts down her shilling and takes away her article, saying to herself: "What a swindle! What a frightful price I I call that a' have,' " she goes away with the determination to do without any more of that article as long as she can; to try to make it herself (as she is now doing in thousands with her gloves), and trade is bad, exchange is dis~ouraged, and unemployment rife. Reverting once more to my definition, a possible amplification of it might read: " Wealth is exchange; money is the medium of exchange."

Money was invented by merchants to facilitate ex change. It is therefore the medium of exchange and nothing else. Exchange started as barter, when some body bargained a sheep for a sa~k of corn. In the course of time, through the process of experiment with various forms of tally, .money as we know it was evolved. The man who bargained his sheep for a bag 68 THE CONFESSIONS OF A CAPITALIST . of corn, because .he wanted corn, had all the trouble of finding not only another man with corn, but a man who, having corn, also wanted a sheep. Through the medium of money we have complicated and simplified things to the point of perfection which is reached when I can use the services of the reader in Chicago to satisfy the man who makes my hat in Lancashire. But it is important to remember that money is nothing else than the medium of exchange. The attempt to use money for purposes other than exchange is responsible for a very large share of the troubles from which the world is suffering. The worst of poison or of sin is that, as a rule, so much of either is necessary to make its nature obvious. Drink, in small quantities, is, or some people think so, a pleasant and agreeable thing.

But drink taken in large quantities is a very dangerous form of poison. Gambling, similarly, can be to some people harmless and amusing. But if we did ·nothing else but gamble, there would be an end of money and of wealth. In the same way the sin of using money for purposes other than exchange can be committed in small and minor ways without doing any more damage than does an occasional whisky and soda or an occasional shilling a hundred on a game of bridge. When we begin to make a habit of using money with out regard "to its natural and essential purpose-ex change-we are doing exactly the same as if we took to drink or gave ourselves up to gambling, and are as surely steering for calamity as in the other cases we should be for delirium tremens or bankruptcy. Money rightly used is a measure or token of some article or some service which is exchanged for some other article or ser"ice, the exchange being calculated by the parties to be equitable and proper, and thus represented on both sides by a given amount of money.

When Mr. Lloyd George goes to the Paris Peace WEALTH IS EXCHANGE Conference, and writes down thousands of millions of marks or francs or pounds; which never existed, and never will exist, and never can bear any relation to exchange; which have no backing in the form of real things; he is using money. for a purpose which is foreign to its nature. He fails utterly to accomplish his object, and he dispenses widespread damage and destruction to money and all that it means to the rest of us. Nothing shows more clearly the crying ~need for a far closer ,cattention than is usual among us to the science of economics than the acceptance as a "right and proper thing, in these later years, of the haphazard handling of money by our politicians. It is very difficult to get the public to think seriously of these questions. The voter is concerned about his own few hundreds a year, and his mind it would seem declines to function if only the politician will talk of enough millions. The fact is that when we depart from the principle of exchange, money ceases to function. This same argument requires development in other ways. There is no exchange about a dole. There is no exchange about an old age pension.

These things are, like drink, only possible in modera tion. There is bad exchange when we talk of " nine pence for fourpence." Again, there is no exchange when a mechanic declines to work unless his ,labourer is sitting, smoking a cigarette, at his elbow. These abuses arise from the growth of the notion that we can, through political action, alter economic law. The misapplied effort of Trade Unionism in the last twenty five years has doubled wages, and, in the main, no one is much better off. The ris'e of the standard of living in the last generation has been slower than in any other generation since the industrial revolution. The first three-quarters of the nineteenth century showed pro gress at a rate unprecedented in the history of man, 70 THE CONFESSIONS OF A CAPIT1\LIST progr~ss always increasing. The last-quarter of that century and the first of our own have, it is true, shown a certain progress, but the rate goes steadily down.

The miraculous benefit of.electricity, for instance, had it been used with the same freedom and energy as was steam, might have lifted the standard of comfort high above that which exists to-day, but it has been largely wasted by this modern habit of pursuing money for its own sake and forgetting that it is merely the medium of exchange. Money, like electricity, must be generated before it can function in any way. Like the electric current, it lies dormant, giving no sign of its existence, until the dynamo, to which the business man is analogous, is set in motion. The activities of the dynamo liberate it from its invisible -and inexhaustible sources, the brushes of commerce collect it from the commutators of exchange and distribute it over the wires of public circulation to perform the multifariQus duties of the civilised world. Thus I argue that wealth is exchange, that there is no real surplus in connection with exchange; that if the market were free we should be exchanging that which we possess in the way ·of power of muscle or brain for similar qualities possessed by others, and that the o·nly surplus or profit that does exist arises from the fact that here and there some of us are prepared to con serve some portion of that which we produce, thus· through " profit" creating capital, and pave the. way for further exchange and further production.