MISCHIEVOUS ECONOMICS.
[To THE EDITOR OF THE " SPECTATOR "] SIR,—The Government are proposing to introduce a Bill limiting the profits of the coal-owners. Labour leaders are busy with schemes for the curtailment of profits generally. So we plunge ever deeper into the tangle of vicious circles. One would gather from the language of the day that there was something infamous in the desire to make a profit at all. We all disclaim the intention. With exaggerated financial prudery, we shudderingly withdraw the hem of our garments from the mere contamination of the idea. I venture to say that we are on an entirely wrong tack. The only way to check " profiteering " is to encourage. profits as much as possible. In a normal and healthy industrial State it is absolutely natural and proper that men should make the highest profits they can. If the operations of economic laws are not interfered with by well-intentioned but mischievous legislation, tha results will be altogether beneficial. In such conditions it is simply impossible for excessively high monopoly profits (i.e., " profiteering") to continue for any length of time. Let us suppose that very high gains are for the moment being reaped in some branch of industry. It at once becomes the interest of all employers of labour and those who possess capital to shore in the benefits that accrue. Capital and organizing abilify will be attracted to that trade and two results will follow: (1) The actual rate of profits will fall from the eager competition of new producers; and consumers will benefit from the attempts of rival manufacturers to undersell one another. (2) Workmen will also benefit, not only as consumers, but because employers will compete with one another for their services, and so wages will inevitably tend to rise. There is no other way to keep excessive profits down. They sink to a normal and proper level in the invigorating air of free competition. They grow with rank luxuriance in a world of minimum wages, maximum prices, and State-regtflated industry—the very world that our Government with the best intentions laboriously creates. If all this is denied, the best answer is a solvitur ambulando. For nearly five years we have tried the other course. The Government, with an almost pathetic receptivity, has eagerly assimilated the suggestions, pressed upon it by Labour leaders and intellectuals, to prevent " profiteering." It paid high wages, it taxed war profits; it revised scales of salaries, it interfered at every point. Well, has it been a success I There can be no doubt about the answer. The outcry against "profiteers" was never so loud 113 to-day. People see with a kind of puzzled fury that large fortunes have been made under shelter of those very restric- tions, which were destined to cut profits down to a minimum. And yet this result was as inevitable as the sunrise. The whole system of price-fixing and profit-limiting is a deplorable blunder. It doses the safety-valve, it removes all elasticity from the industrial mechanism, it checks the natural ebb anti flow of those sweeping economiC tides which keep the ocean of the commercial world healthy and fresh. The maximum price, which will only just pay incapable employers working on the margin of production, is necessarily far too high for vigorous and capable employers working under the best con- ditions. Such a policy fosters the survival of the unit, it puts a premium on incompetency, and it gives to high capacity a foo easily gained reward And then we fly to remedies worse than the disease, such, for instance, as the fatuous Profiteering Act, under' which local Tribunals—Chambres Ardentes of the Orleans Regency transferred to the twentieth century—plunge into activities either positively mischievous or entirely futile. They either conduct foolish crusades which hamper and impede the unfortunate retailer, or spend their time con- genially in the discovery of economic mare's-nests.
The working man's jealousy of profits, if the most natural, is also the most lamentable thing in the world. Good profits and high wages always go together. They are the obverse and reverse of the same condition of national prosperity. Again, if this is denied, the appeal lies to the world of facts. America has always been the paradise of the worker in regard
to high wages and industrial conditions, and in no country have more colossal fortunes been raised on the basis of profits. Unhappily a great deal of our economic thinking is still conditioned by that most pestilential of economic heresies, the' doctrine of the Wage Fund. Yet we ought to have learnt by this time that, if wages are advanced out of capital, they are paid out of the products of industry. Out of these products Labour in the end must obtain the residual share. The land- lord, the capitalist; and the employer each receive their rewards, but those rewards are determined by known economic- laws. Rent is determined by the Ricardian law. Interest simply depends upon tho supply and demand of loanable capital seeking the same market. Profit, as Mr. F. A. Walker has told us, is a species of the genus rent. Its rate depends on the difference of the remuneration of employers on the margin of production and of those who produce under better conditions. The profits therefore of manufacturers are derived from wealth created by the exceptional abilities of industrial organizers. They do not, in the long run and under free competition, form part of the price of commodities any more than rent forms part of the price of agricultural produce, and therefore they do not increase the cost of living. They are not deducted from wages, and therefore no forcible cur- tailment of them can benefit the wage-earner. Here again no doubt the reasoning is abstract, and will hardly convince those who have no economic training. Then for the third and last time I appeal to the indisputable record of facts. No one can possibly deny that for the last sixty or seventy years the con- dition of the working classes in general prosperity and in the scale of life has steadily and surely improved. The residual share of the rewards of production has been gradually setting in their direction. That the movement has not been sti 1 more marked of late years is due to Socialistic legislation, 10 ill-advised labour disputes, to uneconomic Trade Union customs, and to the evil practice of limitation of output. It is not due, and it never could have been due, to the fact that in the great communal and co-operative task of human pro duction the capitalist and the employer have been receiving, for their valuable and essential services, their most just and fair rewards,—I am, Sir, &c., P. E. ROBERTS. TVorcester College, Oxford.
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