Equality & Looking Backward

by Edward Bellamy

  "Please tell us just how the profit system led to this result."

  "There being under the old order of things," replied the boy Frank, "no collective agency to undertake the organization of labor and exchange, that function naturally fell into the hands of enterprising individuals who, because the undertaking called for much capital, had to be capitalists. They were of two general classes--the capitalist who organized labor for production; and the traders, the middlemen, and storekeepers, who organized distribution, and having collected all the varieties of products in the market, sold them again to the general public for consumption. The great mass of the people--nine, perhaps, out of ten--were wage-earners who sold their labor to the producing capitalists; or small first-hand producers, who sold their personal product to the middlemen. The farmers were of the latter class. With the money the wage-earners and farmers received in wages, or as the price of their produce, they afterward went into the market, where the products of all sorts were assembled, and bought back as much as they could for consumption. Now, of course, the capitalists, whether engaged in organizing production or distribution, had to have some inducement for risking their capital and spending their time in this work. That inducement was profit."

  "Tell us how the profits were collected."

  "The manufacturing or employing capitalists paid the people who worked for them, and the merchants paid the farmers for their products in tokens called money, which were good to buy back the blended products of all in the market. But the capitalists gave neither the wage-earner nor the farmer enough of these money tokens to buy back the equivalent of the product of his labor. The difference which the capitalists kept back for themselves was their profit. It was collected by putting a higher price on the products when sold in the stores than the cost of the product had been to the capitalists."

  "Give us an example."

  "We will take then, first, the manufacturing capitalist, who employed labor. Suppose he manufactured shoes. Suppose for each pair of shoes he paid ten cents to the tanner for leather, twenty cents for the labor of putting, the shoe together, and ten cents for all other labor in any way entering into the making of the shoe, so that the pair cost him in actual outlay forty cents. He sold the shoes to a middleman for, say, seventy-five cents. The middleman sold them to the retailer for a dollar, and the retailer sold them over his counter to the consumer for a dollar and a half. Take next the case of the farmer, who sold not merely his labor like the wage-earner, but his labor blended with his material. Suppose he sold his wheat to the grain merchant for forty cents a bushel. The grain merchant, in selling it to the flouring mill, would ask, say, sixty cents a bushel. The flouring mill would sell it to the wholesale flour merchant for a price over and above the labor cost of milling at a figure which would include a handsome profit for him. The wholesale flour merchant would add another profit in selling to the retail grocer, and the last yet another in selling to the consumer. So that finally the equivalent of the bushel of wheat in finished flour as bought back by the original farmer for consumption would cost him, on account of profit charges alone, over and above the actual labor cost of intermediate processes, perhaps twice what he received for it from the grain merchant."

  "Very well," said the teacher. "Now for the practical effect of this system."

  "The practical effect," replied the boy, "was necessarily to create a gap between the producing and consuming power of those engaged in the production of the things upon which profits were charged. Their ability to consume would be measured by the value of the money tokens they received for producing the goods, which by the statement was less than the value put upon those goods in the stores. That difference would represent a gap between what they could produce and what they could consume."

  MARGARET TELLS ABOUT THE DEADLY GAP.

  "Margaret," said the teacher, "you may now take up the subject where Frank leaves it, and tell us what would be the effect upon the economic system of a people of such a gap between its consuming and producing power as Frank shows us was caused by profit taking."

  "The effect," said the girl who answered to the name of Margaret, "would depend on two factors: first, on how numerous a body were the wage-earners and first producers, on whose products the profits were charged; and, second, how large was the rate of profit charged, and the consequent discrepancy between the producing and consuming power of each individual of the working body. If the producers on whose product a profit was charged were but a handful of the people, the total effect of their inability to buy back and consume more than a part of their product would create but a slight gap between the producing and consuming power of the community as a whole. If, on the other hand, they constituted a large proportion of the whole population, the gap would be correspondingly great, and the reactive effect to check production would be disastrous in proportion."

  "And what was the actual proportion of the total population made up by the wage-earners and original producers, who by the profit system were prevented from consuming as much as they produced?"

  "It constituted, as Frank has said, at least nine tenths of the whole people, probably more. The profit takers, whether they were organizers of production or of distribution, were a group numerically insignificant, while those on whose product the profits were charged constituted the bulk of the community."

  "Very well. We will now consider the other factor on which the size of the gap between the producing and consuming power of the community created by the profit system was dependent--namely, the rate of profits charged. Tell us, then, what was the rule followed by the capitalists in charging profits. No doubt, as rational men who realized the effect of high profits to prevent consumption, they made a point of making their profits as low as possible."

  "On the contrary, the capitalists made their profits as high as possible. Their maxim was, 'Tax the traffic all it will bear.'"

  "Do you mean that instead of trying to minimize the effect of profit charging to diminish consumption, they deliberately sought to magnify it to the greatest possible degree?"

  "I mean that precisely," replied Margaret. "The golden rule of the profit system, the great motto of the capitalists, was, 'Buy in the Cheapest Market, and sell in the Dearest.'"

  "What did that mean?"

  "It meant that the capitalist ought to pay the least possible to those who worked for him or sold him their produce, and on the other hand should charge the highest possible price for their product when he offered it for sale to the general public in the market."

  "That general public," observed the teacher, "being chiefly composed of the workers to whom he and his fellow-capitalists had just been paying as nearly nothing as possible for creating the product which they were now expected to buy back at the highest possible price."

  "Certainly."

  "Well, let us try to realize the full economic wisdom of this rule as applied to the business of a nation. It means, doesn't it, Get something for nothing, or as near nothing as you can. Well, then, if you can get it for absolutely nothing, you are carrying out the maxim to perfection. For example, if a manufacturer could hypnotize his workmen so as to get them to work for him for no wages at all, he would be realizing the full meaning of the maxim, would he not?"

  "Certainly; a manufacturer who could do that, and then put the product of his unpaid workmen on the market at the usual price, would have become rich in a very short time."

  "And the same would be true, I suppose, of a grain merchant who was able to take such advantage of the farmers as to obtain their grain for nothing, afterward selling it at the top price."

  "Certainly. He would become a millionaire at once."

  "Well, now, suppose the secret of this hypnotizing process should get abroad among the capitalists engaged in production and exchange, and should be generally applied by them so that all of them were able to get workmen without wages, and buy produce without paying anything for it, then doubtless all the capitalists at once would become fabulously rich."


  "Not at all."

  "Dear me! why not?"

  "Because if the whole body of wage-earners failed to receive any wages for their work, and the farmers received nothing for their produce, there would be nobody to buy anything, and the market would collapse entirely. There would be no demand for any goods except what little the capitalists themselves and their friends could consume. The working people would then presently starve, and the capitalists be left to do their own work."

  "Then it appears that what would be good for the particular capitalist, if he alone did it, would be ruinous to him and everybody else if all the capitalists did it. Why was this?"

  "Because the particular capitalist, in expecting to get rich by underpaying his employees, would calculate on selling his produce, not to the particular group of workmen he had cheated, but to the community at large, consisting of the employees of other capitalists not so successful in cheating their workmen, who therefore would have something to buy with. The success of his trick depended on the presumption that his fellow-capitalists would not succeed in practicing the same trick. If that presumption failed, and all the capitalists succeeded at once in dealing with their employees, as all were trying to do, the result would be to stop the whole industrial system outright."

  "It appears, then, that in the profit system we have an economic method, of which the working rule only needed to be applied thoroughly enough in order to bring the system to a complete standstill and that all which kept the system going was the difficulty found in fully carrying out the working rule.

  "That was precisely so," replied the girl; "the individual capitalist grew rich fastest who succeeded best in beggaring those whose labor or produce he bought; but obviously it was only necessary for enough capitalists to succeed in so doing in order to involve capitalists and people alike in general ruin. To make the sharpest possible bargain with the employer or producer, to give him the least possible return for his labor or product, was the ideal every capitalist must constantly keep before him, and yet it was mathematically certain that every such sharp bargain tended to undermine the whole business fabric, and that it was only necessary that enough capitalists should succeed in making enough such sharp bargains to topple the fabric over."

  "One question more. The bad effects of a bad system are always aggravated by the willfulness of men who take advantage of it, and so, no doubt, the profit system was made by selfish men to work worse than it might have done. Now, suppose the capitalists had all been fair-minded men and not extortioners, and had made their charges for their services as small as was consistent with reasonable gains and self-protection, would that course have involved such a reduction of profit charges as would have greatly helped the people to consume their products and thus to promote production?"

  "It would not," replied the girl. "The antagonism of the profit system to effective wealth production arose from causes inherent in and inseparable from private capitalism; and so long as private capitalism was retained, those causes must have made the profit system inconsistent with any economic improvement in the condition of the people, even if the capitalists had been, angels. The root of the evil was not moral, but strictly economic."

  "But would not the rate of profits have been much reduced in the case supposed?"

  "In some instances temporarily no doubt, but not generally, and in no case permanently. It is doubtful if profits, on the whole, were higher than they had to be to encourage capitalists to undertake production and trade."

  "Tell us why the profits had to be so large for this purpose."

  "Legitimate profits under private capitalism," replied the girl Margaret--"that is, such profits as men going into production or trade must in self-protection calculate upon, however well disposed toward the public--consisted of three elements, all growing out of conditions inseparable from private capitalism, none of which longer exist. First, the capitalist must calculate on at least as large a return on the capital he was to put into the venture as he could obtain by lending it on good security--that is to say, the ruling rate of interest. If he were not sure of that, he would prefer to lend his capital. But that was not enough. In going into business he risked the entire loss of his capital, as he would not if it were lent on good security. Therefore, in addition to the ruling rate of interest on capital, his profits must cover the cost of insurance on the capital risked--that is, there must be a prospect of gains large enough in case the venture succeeded to cover the risk of loss of capital in case of failure. If the chances of failure, for instance, were even, he must calculate on more than a hundred per cent profit in case of success. In point of fact, the chances of failure in business and loss of capital in those days were often far more than even. Business was indeed little more than a speculative risk, a lottery in which the blanks greatly outnumbered the prizes. The prizes to tempt investment must therefore be large. Moreover, if a capitalist were personally to take charge of the business in which he invested his capital, he would reasonably have expected adequate wages of superintendence--compensation, in other words, for his skill and judgment in navigating the venture through the stormy waters of the business sea, compared with which, as it was in that day, the North Atlantic in midwinter is a mill pond. For this service he would be considered justified in making a large addition to the margin of profit charged."

  "Then you conclude, Margaret, that, even if disposed to be fair toward the community, a capitalist of those days would not have been able safely to reduce his rate of profits sufficiently to bring the people much nearer the point of being able to consume their products than they were."

  "Precisely so. The root of the evil lay in the tremendous difficulties, complexities, mistakes, risks, and wastes with which private capitalism necessarily involved the processes of production and distribution, which under public capitalism have become so entirely simple, expeditious, and certain."

  "Then it seems it is not necessary to consider our capitalist ancestors moral monsters in order to account for the tragical outcome of their economic methods."

  "By no means. The capitalists were no doubt good and bad, like other people, but probably stood up as well as any people could against the depraving influences of a system which in fifty years would have turned heaven itself into hell."

  MARION EXPLAINS OVER-PRODUCTION.

  "That will do, Margaret," said the teacher. "We will next ask you, Marion, to assist us in further elucidating the subject. If the profit system worked according to the description we have listened to, we shall be prepared to learn that the economic situation was marked by the existence of large stores of consumable goods in the hands of the profit takers which they would be glad to sell, and, on the other hand, by a great population composed of the original producers of the goods, who were in sharp need of the goods but unable to purchase them. How does this theory agree with the facts stated in the histories?"

  "So well," replied Marion, "that one might almost think you had been reading them." At which the class smiled, and so did I.

  "Describe, without unnecessary infusion of humor--for the subject was not humorous to our ancestors--the condition of things to which you refer. Did our great-grandfathers recognize in this excess of goods over buyers a cause of economic disturbance?"

  "They recognized it as the great and constant cause of such disturbance. The perpetual burden of their complaints was dull times, stagnant trade, glut of products. Occasionally they had brief periods of what they called good times, resulting from a little brisker buying, but in the best of what they called good times the condition of the mass of the people was what we should call abjectly wretched."

  "What was the term by which they most commonly described the presence in the market of more products than could be sold?"

  "Overproduction."

  "Was it meant by this expression that there had been actually more food, clothing, and other good things produced than the people could use?"

  "Not at all. The mass of the people were in great need always, and
in more bitter need than ever precisely at the times when the business machine was clogged by what they called overproduction. The people, if they could have obtained access to the overproduced goods, would at any time have consumed them in a moment and loudly called for more. The trouble was, as has been said, that the profits charged by the capitalist manufacturers and traders had put them out of the power of the original producers to buy back with the price they had received for their labor or products."

  "To what have our historians been wont to compare the condition of the community under the profit system?"

  "To that of a victim of the disease of chronic dyspepsia so prevalent among our ancestors."

  "Please develop the parallel."

  "In dyspepsia the patient suffered from inability to assimilate food. With abundance of dainties at hand he wasted away from the lack of power to absorb nutriment. Although unable to eat enough to support life, he was constantly suffering the pangs of indigestion, and while actually starving for want of nourishment, was tormented by the sensation of an overloaded stomach. Now, the economic condition of a community under the profit system afforded a striking analogy to the plight of such a dyspeptic. The masses of the people were always in bitter need of all things, and were abundantly able by their industry to provide for all their needs, but the profit system would not permit them to consume even what they produced, much less produce what they could. No sooner did they take the first edge off of their appetite than the commercial system was seized with the pangs of acute indigestion and all the symptoms of an overloaded system, which nothing but a course of starvation would relieve, after which the experience would be repeated with the same result, and so on indefinitely."

  "Can you explain why such an extraordinary misnomer as overproduction, should be applied to a situation that would better be described as famine; why a condition should be said to result from glut when it was obviously the consequence of enforced abstinence? Surely, the mistake was equivalent to diagnosing a case of starvation as one of gluttony."