Part 27

FOOTNOTES:

Reprinted by permission from The Quarterly Journal of Economics, Vol. XXIII, Nov., 1908.

See this Journal for August, 1908.

For the connection between prices and prosperity, hard times, unemployment, etc., see The Theory of Business Enterprise, chap. vii (pp. 185-252, especially 196-212).

By "perversion" is here meant such disposition of the industrial forces as entails a net waste or detriment to the community's livelihood.

Should the connection at this point with the main argument of the paper as set forth in the earlier section seem doubtful or obscure, it may be called to mind that these dubious enterprises in dissipation are cases of investment for a profit, and that the "capital goods" engaged are invested wealth yielding an income, but that they yield an income only on the fulfillment of two conditions: (a) the possession and employment of these capital goods enables their holder to turn to account the common stock of technological proficiency, in those bearings in which it may be of use in his enterprise; and (b) the limited amount of wealth available for the purpose enables their holder to "engross" the usufruct of such a fraction of the common stock of technological proficiency, in the degree determined by this limitation of the amount available. In so far, these enterprises are like any other industrial enterprise; but beyond this they have the peculiarity that they do not, or need not, even ostensibly, turn the current knowledge and use of ways and means to "productive" account for the community at large, but simply take their stand on the (institutionally sacred) "accomplished fact" of invested wealth. They have less of the fog of apology about them than the common run of business enterprise.

This statement may not seem clear without indicating in a more concrete manner some terms in which to measure the relative differential advantage and disadvantage which so emerge in such a case of prerogative or privilege. Where, as in the earlier, non-pecuniary phases of culture, no price test is applicable, the statement in the text may be taken to mean that the differential disadvantage at the cost of which the differential benefit in question is gained is greater than the beneficiary would be willing to undergo in order to procure this benefit.

A doubt has been offered as to the applicability of this characterization to such intangible assets as a patent right and other items of the same class. The doubt seems to arise from a misapprehension of the analysis and of its intention. It should be remarked that there is no intention to condemn or disapprove any of the items here spoken of as intangible assets. The patent right may be justifiable or it may not: there is no call to discuss that question here. Other intangible assets are in the same case in this respect.

Further, as to the character of a patent right considered as an asset. The invention or innovation covered by the patent right is a contribution to the common stock of technological proficiency. It may be (immediately) serviceable to the community at large, or it may not;--e.g., a cash register, a bank-check punch, a streetcar fare register; a burglar-proof safe, and the like are of no immediate service to the community at large, but serve only a pecuniary use to their users. But, whether the innovation is useful or not, the patent right, as an asset, has no (immediate) usefulness at large, since its essence is the restriction of the usufruct of the innovation to the patentee. Immediately and directly the patent right must be considered a detriment to the community at large, since its purport is to prevent the community from making use of the patented innovation, whatever may be its ulterior beneficial effects or its ethical justification.

Neither as a physical magnitude ("land") nor as a pecuniary magnitude ("real estate") is the capitalised land in question an item of "good-will"; but its value as real estate--i.e., its magnitude as an asset--is in part a product of the "good-will" (illusions and the like) worked up in its behalf and turned to account, by the land agent. The real estate is a tangible asset, an item of material wealth, while the "good-will" to which in part it owes its magnitude as an item of wealth is an intangible asset, an item of immaterial wealth.

"Livelihood" is, of course, here taken in a loose sense, not as denoting the means of subsistence simply or even the means of physical comfort, but as signifying that the purchases in question are made with a view to the consumptive use of the goods rather than with a view to their use for a profit.

The instruments of production so monopolised are, of course, tangible assets, but the ownership of such means of production in amount sufficient to enable the owner to monopolise or control the market, whether for purchase (as of materials or labor) or for sale (as of marketable goods or services), gives rise to a differential business advantage which is to be classed as intangible assets.

One writer even goes so far in the endeavor to bring the facts within the scope of the staple concepts of theory at this point as to rate the persons concerned in such a case as "capital," after having satisfied himself that such income-streams are traceable to a personal source.--See Fisher, Nature of Capital and Income, chap. v.

Cf. Fisher, Rate of Interest, chap. vi.

This conclusion is reached, e.g., by Mr. G. P. Watkins (The Growth of Large Fortunes, chap. iii, sec. 10), although through a curious etymological misapprehension he rejects the term "timeless" as not available.

Even Mr. Watkins (as cited above), e.g., is led by a superficial generalisation to class these gains as "speculative," and so to excuse himself from a closer acquaintance with their character and with the bearings of the class of business enterprise out of which they arise.

Cf. Theory of Business Enterprise, chap, v, pp. 119-130; chap. vi, pp. 162-174.

Cf. Theory of Business Enterprise, footnote on pp. 169-170.

As should be evident from the run of the argument in the earlier portions of this paper, the use of the words "tax," "deduction," "abstraction," in this connection, is not to be taken as implying approval or disapproval of the phenomena so characterised. The words are used for want of better terms to indicate the source of business gains, and objectively to characterise the relation of give-and-take between industry and ordinary capitalistic business, on the one hand, and between ordinary business and this business enterprise on the higher plane, on the other hand.

SOME NEGLECTED POINTS IN THE THEORY OF SOCIALISM

The immediate occasion for the writing of this paper was given by the publication of Mr. Spencer's essay, "From Freedom to Bondage"; although it is not altogether a criticism of that essay. It is not my purpose to controvert the position taken by Mr. Spencer as regards the present feasibility of any socialist scheme. The paper is mainly a suggestion, offered in the spirit of the disciple, with respect to a point not adequately covered by Mr. Spencer's discussion, and which has received but very scanty attention at the hands of any other writer on either side of the socialist controversy. This main point is as to an economic ground, as a matter of fact, for the existing unrest that finds expression in the demands of socialist agitators.

I quote from Mr. Spencer's essay a sentence which does fair justice, so far as it goes, to the position taken by agitators: "In presence of obvious improvements, joined with that increase of longevity, which even alone yields conclusive proof of general amelioration, it is proclaimed, with increasing vehemence, that things are so bad that society must be pulled to pieces and reorganised on another plan." The most obtrusive feature of the change demanded by the advocates of socialism is governmental control of the industrial activities of society--the nationalisation of industry. There is also, just at present, a distinct movement in practice, towards a more extended control of industry by the government, as Mr. Spencer has pointed out. This movement strengthens the position of the advocates of a complete nationalisation of industry, by making it appear that the logic of events is on their side.

In America at least, this movement in the direction of a broader assertion of the paramount claims of the community, and an extension of corporate action on part of the community in industrial matters, has not generally been connected with or based on an adherence to socialistic dogmas. This is perhaps truer of the recent past than of the immediate present. The motive of the movement has been, in large part, the expediency of each particular step taken. Municipal supervision, and, possibly, complete municipal control, has come to be a necessity in the case of such industries--mostly of recent growth--as elementary education, street-lighting, water-supply, etc. Opinions differ widely as to how far the community should take into its own hands such industries as concern the common welfare, but the growth of sentiment may fairly be said to favor a wider scope of governmental control.

But the necessity of some supervision in the interest of the public extends to industries which are not simply of municipal importance. The modern development of industry and of the industrial organisation of society makes it increasingly necessary that certain industries--often spoken of as "natural monopolies"--should be treated as being of a semi-public character. And through the action of the same forces a constantly increasing number of occupations are developing into the form of "natural monopolies."

The motive of the movement towards corporate action on the part of the community--State control of industry--has been largely that of industrial expediency. But another motive has gone with this one, and has grown more prominent as the popular demands in this direction have gathered wider support and taken more definite form. The injustice, the inequality, of the existing system, so far as concerns these natural monopolies especially, are made much of. There is a distinct unrest abroad, a discontent with things as they are, and the cry of injustice is the expression of this more or less widely prevalent discontent. This discontent is the truly socialistic element in the situation.

It is easy to make too much of this popular unrest. The clamor of the agitators might be taken to indicate a wider prevalence and a greater acuteness of popular discontent than actually exists; but after all due allowance is made for exaggeration on the part of those interested in the agitation, there can still be no doubt of the presence of a chronic feeling of dissatisfaction with the working of the existing industrial system, and a growth of popular sentiment in favor of a leveling policy. The economic ground of this popular feeling must be found, if we wish to understand the significance, for our industrial system, of the movement to which it supplies the motive. If its causes shall appear to be of a transient character, there is little reason to apprehend a permanent or radical change of our industrial system as the outcome of the agitation; while if this popular sentiment is found to be the outgrowth of any of the essential features of the existing social system, the chances of its ultimately working a radical change in the system will be much greater.

The explanation offered by Mr. Spencer, that the popular unrest is due essentially to a feeling of ennui--to a desire for a change of posture on part of the social body, is assuredly not to be summarily rejected; but the analogy will hardly serve to explain the sentiment away. This may be a cause, but it can hardly be accepted as a sufficient cause.

Socialist agitators urge that the existing system is necessarily wasteful and industrially inefficient. That may be granted, but it does not serve to explain the popular discontent, because the popular opinion, in which the discontent resides, does notoriously not favor that view. They further urge that the existing system is unjust, in that it gives an advantage to one man over another. That contention may also be true, but it is in itself no explanation, for it is true only if it be granted that the institutions which make this advantage of one man over another possible are unjust, and that is begging the question. This last contention is, however, not so far out of line with popular sentiment. The advantage complained of lies, under modern conditions, in the possession of property, and there is a feeling abroad that the existing order of things affords an undue advantage to property, especially to owners of property whose possessions rise much above a certain rather indefinite average. This feeling of injured justice is not always distinguishable from envy; but it is, at any rate, a factor that works towards a leveling policy. With it goes a feeling of slighted manhood, which works in the same direction. Both these elements are to a great extent of a subjective origin. They express themselves in the general, objective form, but it is safe to say that on the average they spring from a consciousness of disadvantage and slight suffered by the person expressing them, and by persons whom he classes with himself. No flippancy is intended in saying that the rich are not so generally alive to the necessity of any leveling policy as are people of slender means. Any question as to the legitimacy of the dissatisfaction, on moral grounds, or even on grounds of expediency, is not very much to the point; the question is as to its scope and its chances of persistence.