VII. The Limitations of Money

CHAPTER VII THE LIMITATIONS OF MONEY WITHOUT money civilisation could not exist, and yet it sometimes seems as if the misunderstanding of money will bring civilisation to an end. The readerwill remember that in a previous chap ter we took the case of a single railway porter, and we gave him an extra £ 5 a week. We did not, however, trouble, to inquire where the £ 5 came from. He may have got it from a wealthy aunt who died, or somebody may have been taxed to provide it, or the price of some rai1~ay service may have been increased. In any of these cases, some other person has been robbed of the opportunity to make a number of purchases, and that opportunity has been transferred to the railway porter. The giving to this single man of the single £ 5 note has not added anything whatever to the wealth of the community as a whole. Political action d<?es a great deal of this sort of work. It takes a bit of wealth from one man and gives it to another. Some £ 3°0,000,000 a year for social ser vices alone are transferred in that way at present.

,There may be some people ready to jump to the conclusion that no change occurs in the wealth of the community as a whole as the result of such a transfer, but it is gravely to be doubted whether the transaction is as innocuous In its effects as, prim.a facie, it might seem to be. If, for instance, the peop~e who provide the £ 3°0,000,000 are in any way discouraged by the 78 The Limitations 0 t Money 79 process and lessen their productive activities to any extent, however small, the wealth of the nation is reduced to that extent. On the other hand-and this is, perhaps, the more serious consideration-should the people who receive the £ 300,000,000 be in any way encouraged to slacken their productive efforts, then the wealth of the community is again adversely affected. Whatever opinions, however, may be held regarding this aspect, it cannot be argued that the transfer can increase the amount of wealth which is available for all. Political action, therefore, does not contribute anything towards the provision of the 8,000,000 houses, the 135,000,000 suits., or the many other things that we found to be wanting.

It is worth while to consider what would happen if, by some Socialist device, all incomes were fixed at a level agreed upon as completely satisfactory to the recipients. There is no difficulty about fore casting the sequel. Prices would rise, and we should be faced with all the perplexities of adjusting ourselves to a new price level. We have actually, in the last quarter of a century-the period during which the politician has usurped the place of the business man-doubled our wages. We have done it gradually; first came the bricklayers, then the engineers, afterwards the labourers, and so on. As each part of the process has been completed, as each class has pushed up its price, the others have been at a disadvantage until they could do the same. Thus a state of uncertainty prevails, and we go on 80 The Return to Laisser Faire fooling about with· money and sharing out the same inadequate quantity of goods and things.

The money folly can be seen if we look at America, the land of the almighty dollar . America has little poverty, no absence of things. She has de veloped mass production and the theory of output to the point when she finds it necessary to flood the world with her surplus. Although prices, in America are high, nobody bothers about that. America is obsessed with the twin ideas ofproduc tion and efficiency, two ideas which have never yet been popular with us, except, perhaps, in connec tion with such things as newspapers, cigarettes and sweets. When we accept those ideas we can abolish poverty just as surely as America has done. Eng land is over-politicalised. Compare England with France or Germany, and compare all three with America. The standard of living, the wealth per head of the population, is in England, France and Germany roughly on a level by comparison with America. America is at least miles ahead of anyone of the three of us. In Eng land, we are, perhaps, a little better off than they are in France or Germany, but only a little. Yet neither. France nor Germany has enjoyed thirty years of peace at any time within recent history.

Neither country has been free from warlike opera tions on its own soil, while we have been entirely spared this form of devastation. We have lost far more .wealth from politics than The Limitations of Money 81 from wars, and it is because America gives little thought to either that the I 17,000,000 Americans are in material comforts the most fortunate people in the world. Weare now threatened with another exposition of the political money folly in the Socialist surtax pro posal, which, should it be put into effect, would once again upset all .our calculations, but which, apart from financial inconvenience, would produce nothing. The Socialists, by the way, will have to find a new name for their confiscatory proposals, since Mr. Churchill has stolen their word for his Super Tax complications. The surtax is a side issue, and in that way does not differ from most political questions to-day.

Political discussion has degenerated in recent times from doctrine to detail. Some years ago I employed an American sales expert to manage the" subscription" travellers of one of my trade papers, "The Cabinet Maker." The method of this Yankee was ingenious. My travellers were gravely instructed in the trick of de veloping a discussion with a prospective customer as to whether he would prefer to have "The Cabinet Maker" from a local bookseller, or direct by post from the publisher. Elaborate arguments were developed, setting out the relative merits of the two systems of delivery. The other alternative -that the prospective customer should not buy "The Cabinet Maker" at all-was so skilfully 6 82 The Return to Laisser Faire ignored and evaded as to pass from the mind of the victim of the stratagem. F or a time this finesse suc ceeded. So it is with the Socialist surtax. Somebody sug gests that it should apply to incomes of £ 500 and over. The debate becomes fast and furious on all the details. Why £ 500? Why a surtax? Why not increase the income-tax?· Why not do it this way or that way? Nobody ever bothers even to think of the purpose or principles of taxation, the need for taxes, the use to which they are put, the good or the harm which they can do.

This is, of course, usual in politics. We fail, either through lack of ability or because we are too lazy to get a bird's-eye view of the problem with which we tinker so disastrously. One day we apply ourselves to railways, and putthem in a position to ruin the mines. A few weeks or months later, when the miners complain, we forget the railways and talk about subsidies. We pass on, in our careless, irre sponsible manner, to saddle ourselves with burdens on behalf of sugar beet, blind to the fact that we are already the largest consumers of sugar in the world. Having killed the sugar trade, we shall talk about the folly of capitalism or the madness of the other party. Let any fool to-day propound a new way of under mining the prosperity of the nation and immediately each of the three political parties will hold a confer ence to expound their own pet scheme, not for get ting rid of the fool but for giving effect to the folly.

The Limitations of Money 83 It is just the same with the surtax. The Labour party makes a proposal on the assumption-which is allowed to go almost unchallenged-that more money must be found. We thus find ourselves plunged without more ado into the details of the taxes. No political party seems strong enough to say that no more money is wanted, that the way to success, national and individual, is to raise less money by taxation. And so, as alternative to sur tax, the Liberals offer. us death duties, and the Tories propose tariffs. The surtax can be regarded from at least five dif ferent standpoints: (1) That of the taxpayer; (2) that of the dole receiver or tax beneficiary; (3) that of the Treasury; (4) that of industry; (5) that of the nation as a whole. At present, however~ the money fallacy dominates this country. It is not realised that if, by means of surtax, we levelled the incomes of all .down to £ 500; if, when that were done, we all continued to do the same work as now; and if we gave all the sur plus to the poor, we should not have gained an extra house or a single extra penny bun .as the result of that operation. More houses and more buns are wanted, not more money.

By way of illustrating my contention, suppose that we take £ I from " A," the wealthy person, and give it to " B," the poorman. If, in conse quence, " A " gives up cigars and " B " buys a pair of boots, the world may be a little better in that the health of both will be improved, that of " A" by the lack of cigars, that of " B " by the acquisition 84 The Return' to Laisser Faire of boots. The wealth of the community as a whole remains unaffected. Four distinct things have been done: I. A man without boots has been satisfied if an extra pair of boots has been made. 2. The bootmakers have received more wages. 3. A cigar maker has gone out· of work. 4. If the man" B " is capable of making something with the proceeds of which he· might. have bought the boots and has failed to make that thing because of the above operation, then definite harm has been done. However the problem is considered, the best that can be said is that in the most favourable circum stances wealth may be better distributed. It can never be claimed that any additional wealth is made by this sort of operation, and it is gravely to be feared that the total wealth is thereby reduced. Far too many people -believe that money is omnipotent, that nothing can be done without it. It will place one man in a better position than another, and the moving of money may alter the relative positions of men, but money of itself will not add one iota to the real wealth of the nation.

In so far as the surtax will discourage or curtail saving it will quite definitely defeat its one object of relieving poverty. Examination of the figures of our staple industries shows that, for every worker employed, £ 1,000 worth of capital, machinery and equipment' is required. The proportion is rather higher on the railways, but it may be taken as roughly true that every wage-earner requires £ 1,000 in bricks, mortar , machinery and tools to The Limitations of Money 8S make his work effective. Every £ 1,000, therefore, taken off our savings as a nation adds one man or woman to the roll of the unemployed. However much it may go against the grain, in our modern way of thinking, to leave, the millionaire with his millions, we should not overlook the fact that the millionaire can do nothing with his money, directly or indirectly, but invest it in some sort of machinery which has to be worked by somebody.

The cutting down of wealth by taxation, therefore, cuts off our supply of the capital upon which our industries and our wage-earners depend for their very existence. Belonging, as I do, to the Gladstone school of finance, I believe that all our present poverty is directly due to taxation. 'To emphasise this point it is worth while to indulge in a fantastic exaggeration. Exaggeration sometimes helps in the search after truth. If it could be assumed that in November, 1918, when we signed a military armistice, we had also signed an economic armistice, that from that day to this we had had a ten-year holiday from Par liaments and bureaucrats, and that in consequence no money had been collected in taxes, then to-day there would be £ 10,000,000,000 in the pockets of private individuals ready for investment in indus try, and to provide employment for ten million more workers at the rate of £ 1,000 per worker. In these impossible circumstances we should have arrived at the position when labour could secure any price it cared to demand, and when capital could be had for I per cent. per annum.

86 The Return to Laisser Faire The surtax will·not stop luxury-spending, but in crease it. Excessive luxury, which so properly offends all right-thinking people, is due to the ease of. profiteering in a restricted market brought about by the lack of capital which, in its turn, is caused by excessive taxation. My case is, therefore, against taxation rather than against any particular tax or surtax. Contemplate the taxes we have got already! See what we have done in the last fifteen years in this way, and it must at once be obviousthat our troubles arise not from the absence of a surtax, but from the presence of a super-tax' and all the other official extortions ~ In 1913 the taxpayer with an income of £ 100 a year paid about £ 6 in taxation; in 1923 he had to pay £ 15. In 1913 the taxpayer with £ 1,000 a year contributed £80 to the Exchequer; in 1923 £ 160. The levy on an income of £ 2,000 a year was £ 95 in 1913, against £ 331 ten years later; while in the same period the tax upon £ 20,000 a year has risen from £1,591 to £8,321. These figures apply if we reckon direct taxation only. The taxation per head of the population-· and it is all too little appreciated that taxation is paid by the whole population in the price of commodities and not by the wealthy man who writes the cheque-· was oppressive enough in 1913-14 at £4 6s. Sd. per head, but in 1926-7 at £ 18 12S. 6d. per head it is the root cause of our worst industrial ills.

I observed earlier that the surtax could be dis cussed from five different points of view, the firstThe Limitations of Money 87 mentioned being that of the taxpayer, and it would be useful if all parties would agree that he has no standing on personal grounds. Taxation is a ques tion of the well-being of the entire nation, and the personal well-being of some particular class of indi viduals is quite beside the mark. It would clear the air considerably if we could all agree to give up the " What's mine's my own " line of thought. Years ago John Morley wrote to Joseph Chamber lain: "N0 right is worth a straw apart from the good that it brings, and claims to right must depend. not upon nature, but upon the good that the said rights are calculated to bring to the greatest num ber." If we argue--. as, of course, I do-in favour of private property, we must do so because we be lieve private property to be in the public interest.

It is the only basis upon which such property can be justified in this stage of the world's history. From the taxpayer's point of view, indeed, the surtax might bring, like so many economic ills, its own cure. Its sponsors have not considered the tre mendous political consequences if everybody with £ 500 a year were subjected to the inquisitorial methods now reserved for the privileged 80,000 or 90,000 super-tax payers. The super-tax payer does not count as a political force, but two or three million £ soo-a-year people would have to be reckoned with. Similarly, and secondly, the dole-receiver or the tax beneficiary is out of court. It is essential that we should not allow ourselves to impoverish the nation by thinking only of the individual position 88 The Return to Laisser Faire of somebody who happens to want something. :There has been far too much," citizenship by proxy. " We have developed to extremes the art of paying somebody else to spend the other man's money. As to the dole-receiver's point of view, there is another consideration which ~hould' not be overlooked. We have among us to-day 1,000,000 people who have mastered the art· of qualifying for one' or other of the several forms of benefit offered by the State .. Another million are waiting for new benefits. We shall quickly reach a stage when the chief occupation of the nation is filling up forms, on the one .hand in connection with the payment of taxes, and, on the other, associated with the receipt of relief.

Thirdly, the Treasury. I have no means of knowing the official view, but there can be no ques tion that the sensible Treasury view of this matter must be for some simplification rather than for any further complication of the taxing machine. A third tax added to income-tax and super-tax means much more expense in' collection, and also means, of course, much more evasion. I have yet to find even the Socialist who will argue that the surtax is designed to help industry. Indus try wants capital, and a surtax will not assist it in that way. Thus we come down to the last point of view, from which this taxation problem should be argued -the point of view of the nation as a whole. It is the last and the only relevant consideration. I do not think that there would be much doubt on the The Limitations of Money 89 general question of taxation, or about any sugges tion for increasing the national charge, if we could get our people to study, not so much where the money comes from, as where it goes.

We have agreed long enough ago that taxes should be placed upon the shoulders of those best able to bear them. We have committed ourselves irrevocabl y to the theory that the higher the income the higher the tax, and we have developed a position in which 43,000,000 people delude themselves into thinking that public expenditure is borne by the two millions who nominally pay the taxes. If, however, we look at the matter the other way round, and think about the channels into which the money disappears, we get on to a more democratic basis, for while there may be differences of opinion as to who pays taxes, nobody will dispute that every pennyworth of public expenditure is undertaken with a view to the interests of the whole. Thus each of us as citizens, in theory at least, receives his proper share of the benefit from money spent from the public purse. Now the public purse takes in and pays out, nationally and locally, no less a sum than £ 3 per week per family. I wish it were possible for every elector to get this vital point firmly fixed in his mind, disregarding altogether where the money comes from. No doubt can be entertained that £ 3 is spent every week in the name of, and on behalf of, every family in the land. If this question could be put squarely to every workingman elector: "Are you getting £ 3 value every week from all these Acts go The Return to Laisser Faire of Parliament, all these public authorities, and all these political blessings that are so freely showered upon you?" the answer would assuredly be em phatic, definite, and fatal to any proposals for further taxation. It is too much to hope that the modern working man will develop any considerable indignation at the robbing of the rich, so long as he is left with the impression that he himself derives some benefit from the process. But when at last he understands, as £ 3 a week would make him under stand, that the benefits are not only vastly over estimated, but that, after all, he himself may be the victim of the robbery, another point of view will prevail.