Proletarian and Petit-Bourgeois/Those who own and those who work

by Scott Nearing

THOSE WHO OWN AND THOSE WHO WORK.^[1]

By Scott Nearing.

Those who own and those who work face each other. The worker demands a return for his work. The owner demands a return for his ownership. The rapid growth of property values during recent years has accentuated and emphasized the conflict between work and ownership. On the one hand, are the people who devote their time and energy to the production of wealth. On the other hand are the people who own income-yielding property. The workers receive a wage or a salary; the owners receive payments of rent, interest and dividends. Many of the workers are growing clamorous over "human rights." The property owners, persistent, and ever watchful, urge the "rights of property." The time has come when the claims of the contending interests must be analyzed and understood.

A clearer idea of the points at issue will be assured if the term "property income" is applied to the returns that accrue from ownership and the term "service income" is applied to the returns that accrue from the expenditure of time and energy in the rendering of service. All regular income owns its origin to one of these two sources.

The owners of property bulwark themselves with certain prerogatives that have proved of the greatest importance in the conservation of property interests. Speaking broadly, there are four characteristic features of the shares of income which are derived from the ownership of property. First, property income enjoys priority in its claims upon the proceeds of industry. Second, the vicissitudes of industry affect property income less sharply than they affect service income. Third, income-yielding property exhibits a tendency to concentrate in the hands of a small fraction of the people. The total effect of these characteristics of property income is stupendous. The priority, regularity, permanence and concentrability of property income combine to place the owners of modern income-yielding property in a position of economic security that surpasses the dreams of past ages.

Those who are giving their time and energy to the production of wealth, face the fact that property rights have been so construed as to give property owners a first claim on production and to make property income a fixed charge on the industry of the community. This priority of claim has played a leading part in raising property to a position of supremacy in the economic world.

The risks of industry, the burden of economic uncertainty, and the losses incident to the dislocations of the industrial systems are carried in the first instance by labor. The first appearance of hard times is followed by a decrease in the working force. The least curtailment in orders leads to part-time work. Wage rates are not cut—that method is crude and disastrous—but men and women are laid off temporarily or permanently. Bonds still draw their interest; the dividends are paid on stocks; and labor waits for a job. The defender of property income will say at once,—"If there is nothing to do, why pay labor?" The counter question is obvious. "If there is nothing to do, why pay capital?" "Ah," responds the propertied interests, "you can get rid of the laborer by firing him, but the investment still stands." That answer carries the essential distinction in priority between the position of the property owner and of the worker. Mines, railroads, factories, and machinery, cannot be laid off. Through good times and bad, they are a fixed charge, unless the business wishes to face bankruptcy proceedings. The most important obligation of a modern business is the interest on its bonded debt. Wages and salaries may stop, but interest on bonds must continue if the business is to remain solvent.

Thus land owners, the owners of bonds and mortgages, and in late years, the owners of stocks as well, have saddled their property ownership claims on society. They are possessed of the vitals of present-day economic life. Armed with title deeds to natural resources and to machinery alike, they are in a position to dictate terms to the remainder of mankind. Before a tree can be cut or a ton of coal mined; before a wheel can turn or a locomotive speed along the steel pathway; before a wage-earner can raise a hand to labor for himself and his family, the proper owners must be assured that they will receive a specified rate of return on their holdings.

Society, for the use of the earth which was here before our forefathers came, and for the use of the machinery of production which the people of America have spent three centuries in building, must pay a royalty, or tax, to the owners of land of machinery. The method by which the owners came into possession of this property is scarcely brought into question. As owners, they are entitled to the first fruits.

The point is well illustrated by an analysis of the way in which periods of prosperity and of adversity affect the shares of income. First, take railroad earnings. During a good year, a regular rate—say 5 per cent.—is paid on bonds. The earnings being high, a dividend of 8 per cent is paid on the stock. The general run of wages and salaries remains the same, although they are increased in a few departments. A bad year ensues. The interest on the bonds is paid at the same rate as in a good year. Earnings are low, therefore the dividends on the stock are cut from 8 to 5 per cent. There are less freight and fewer passengers to carry. No new construction work is undertaken; therefore, a quarter of the railroad employees are dropped from the pay rolls. No reduction is made in wages; the wage earner is simply denied the opportunity to earn a living. Interest must continue, else bankruptcy ensues. Dividends may be, and frequently are, cut or passed. Earnings for a considerable proportion of the employees stop absolutely. In other industries, such as textile manufacturing and coal mining, instead of dismissing employees, the establishment is worked two or three, or perhaps four days a week during bad times. The interest on the bonds is, of course, paid. Dividends on the stock may be passed or paid out of surplus. Wages are decreased by the simple methods of part-time work. In short, the incorporation of industry, involving the issue of stocks and bonds, creates a situation in which, during periods of adversity, the chief burden is borne by the employees; and year in and year out, through adversity and prosperity, interest is paid to bondholders. Exactly the same thing is true of the rent of land. In good years and bad years alike, the tenants must pay the same amount. Certain forms of vested income thus continue, while earned income and the opportunity to earn income are dependent on the caprice of industry.

Heretofore the bonds of an industrial enterprise have been looked upon as the stable form of security. The development of law and of public opinion has rendered them ironclad. The United States Commission of Internal Revenue reports, for the corporations coming under its purview, a bonded indebtedness of $34,749,516,354. Here is a fund, which at the very outset will yield at 5 per cent, a billion and three quarters annually.

The same security which now surrounds bonds, is being gradually thrown around stock issues. In days gone by, stock issues were not taken seriously. Today, the right to pay a 6 per cent return on stock—even if the issue did not originally represent value invested—is being recognized in court decisions, in the decisions of railroad commissions, and in the attitude of industry toward income. Thus there has been effected a reversal in the relation between property claims and the claims of labor. Time was when property shouldered the give and take—the profits of industry. If there was a lean year, profits were small. They were larger in fat years. The man invested his money, took the risk involved, and was paid for it.

At present, labor shoulders the give and take of prosperous and adverse years. When times are bad, men are laid off. Orders decrease, and part-time automatically ensues. Meanwhile the snipping of coupons sounds at regular, unvaried intervals, and the book in which dividend checks are drawn is busy four times every year.

Modern business practice has wielded an immense influence in the direction of property permanence. A thousand dollars, once invested, is virtually immortal, unless it is stolen, or disposed of in some extra legal way. Depreciation, amortization, insurance and special surplus-fund charges throw around income earning property a large guarantee of safety. Any failure in the perpetuity of the property values is due to inadvertence or impotence in the property interests. For centuries the thought and effort of the business world have been directed toward the increasing permanence of property rights.

The efforts of the propertied interests have been exerted to good purpose. The public mind, the laws and constitutions, the forms of judicial practice—in short, all of the social forces that were of advantage have been bent to the guarantee of property income permanence.

Granted the continuance of the present system of property, the student trembles to think of the task in store for the toiler of the future. Each year, besides producing wealth in sufficient quantities to provide for himself and his family, he must devote a large portion of his energies to the provision of income for the owners of a vast and ever-growing body of immortalized property rights and interests.

Men look with pretended aversion toward the Feudal System—an organization of society under which the nobility and the priestcraft, through the control of the natural resources (agricultural land) were able to live upon the efforts of the great mass of the people. Is it not time to turn from the perspective of history to the realities of the present day economic organizations? Here, in the twentieth century, civilization of the Western World is an economic system which automatically turns into the coffers of those who control the natural resources (forests, ore, coal, fertile land) an endless stream of wealth. As rent ate up the fruits of a man's energy, under feudalism, interest and dividends do likewise under the modern system of industrialism, which has given to income-yielding property a permanence that rivals that estate held by the mediæval landlord.

There is one further feature of the property income situation which cannot be dismissed without a word of comment—that is the tendency of property income to concentrate in the hands of a small group of the population. The tendency is revealed by the record of wealth distribution in every society about which history contains a page. It is present, no one can say with what impetus, in the United States today.

The present system of property ownership places no limitations on the amount of income-yielding property which one individual may control. The Rockefellers, Guggenheims and Carnegies may secure title to a hundred-thousand, a hundred-million, or a hundred-billion estate. There is nothing in the custom or law of the land to check such a procedure, and in the course of the undertaking, business practice affords every conceivable advantage. The modern property-owning world is organized on the assumption that every man has a right to as much property as he can get. Under the circumstances, it is not strange that there has been a very considerable concentration of property ownership in a comparatively few hands.

The rapidity with which large fortunes have been acquired is one of the wonders of the modern world. At the present time, the United States numbers its millionaires by thousands. The mere mention of such names as Vanderbilt, Gould, Astor, Rockefeller, Morgan, Havemeyer, Belmont, Whitney, Goelet, Carnegie, Armour, Harriman and Dupont (all of them families numbered among the multi-millionaires whose wealth was acquired, for the most part, since the Civil War) calls to mind the immense concentration of income-yielding wealth which has been going on within the past century. The industrial system is interwined with a device known as private property in income-yielding wealth, which leads inevitably to the concentration of property income in the hands of a comparatively small portion of the population.

The exact figures showing the concentration of property values are unobtainable, and of no great moment in the present discussion. The tendency of income-yielding property to concentrate in a relatively small number of hands is evident on every side. The extent of the concentration cannot, and need not, be ascertained with accuracy.

The actual amounts paid to the men and women who do the work of the industrial world are extremely small. Current wage rates, placed side by side with the expense accounts of thousands of families whose sole claim to income rests upon their ownership of property, are startling in their paucity. Five hundred dollars a year paid to an able-bodied man whose back was bent three hundred days of the year in his efforts to support a wife and four small children; seven dollars a week to the anæmic man whose eye races with his machine along the seams of ladies' coats; fifteen dollars a week to a mechanic, keeping a family in a big city; a thousand dollars a year to a skilled artisan. These wage rates are meagre when contrasted with the returns to the men who own the valuable property of the country.

More than nine-tenths of those who are at work in organized industry are clerks or wage-earners. Among male clerks and wage-earners an annual return of $1,000 is exceptional, while $1,500 is almost unique. Almost the entire male wage-earning population receives less than $1,500 per year; most of it receives less than $1,000, and full half of it falls under $600. The incomes of women fall far below those of men. At the same time the owners of property receive an annual income of many billions. The facts adduced in the present investigation tend to show at least six billions of property income—a sum sufficient to support the twelve million poorest families in the United States on their present level of existence, or to add $300 per year to the income of every family in the United States. The amount now paid in property income, distributed among the producers, would probably raise every family income in the United States to a level of decency or efficiency.

Property income is relatively stable. Numerous and effective safeguards have been thrown around it. Despite occasional breaks in the abatis protecting property income rights, as a general rule, the defenses erected by the propertied classes have proved well-nigh impregnable.

With those receiving service income the situation is far different. Excepting the small percentage of high-salaried workers, the great mass of those who receive service income are forced to struggle in a sea of economic uncertainties. There are five forces always confronting the workers, any one of which may reduce or entirely eliminate service income. They are (1) overwork, (2) sickness and accidents, (3) invention of new machinery, (4) shutting-down of individual plants and (5) industrial crises.

Under the strain incident to overwork, a man may break down at forty and be discharged because he is physically or nervously unable to continue with his duties. Modern industry is run at a terrific speed which leads inevitably to a shortened working life, or decreased efficiency. The speeding-up system clearly places a premium on youth and vigor and a serious handicap on age. This fact the companies are not slow to recognize. They do not want old men on their pay-rolls—and they say so, clearly and emphatically. There are many industries in which men are expected to go to pieces before reaching normal old age. The pace is set high, and those who cannot keep it, must drop out or take less lucrative positions.

Industry offers the workingman an opportunity to earn a living, subject to the caprice of overwork, sickness, accidents, new machinery, individual shut-downs and general suspensions of industrial activity—a hierarchy of forces which overshadow every movement of his life, threatening continually to hurl him into an abyss of hardship and misery. Any one, or any combination of these five forces, may, at any time, diminish, temporarily or permanently, the income-earning capacity of the worker. All of them are beyond his individual control, yet they strike, with mericless certainty, the sources of livelihood of the family in which they occur.

The nation is built on the work of its workers.

Today, as in every past age, the idler and the parasite are burdens on national life. They add nothing to national well-being, while they cost their keep.

The workers are the nation. As they thrive, the nation thrives. As they succeed in life, the nation is prosperous and great. The future of the nation is inseparable from the future of the nation's workers. It was not for nothing that Capt. John Smith insisted,—"He who will not work, neither shall he eat."

Fronted by these facts, we are deliberately working out an economic system which glorifies ownership and penalizes work. The owner prospers; the worker exists. The owner lives upon the fat of the land, which the worker has created.

A survey of the relative positions occupied by the recipients of service and of property income, shows that the property owners hold practically all of the strategic points. They are supported by tradition; bulwarked by custom, and protected by most of the motive forces of society. The social mind and the social structure alike have been shaped so that they would function in terms of property income rights and privileges.

Those who receive service income have the advantage of numbers and the possibilities of organized action. They are convinced of the essential injustice of their position. Otherwise they are compelled to go weaponless into the conflict.

Economic forces are pushing forward the issue. They have placed on one side the majority of the population, who carry the burdens of economic society, and put forth the energy necessary to propel industry. On the other side, the economic forces have ranged a small group of persons in whose hands is concentrated the great bulk of the income-yielding wealth of the community. The forces of economic society are sharpening the contrast between service and property income, and adding daily to the irony of a status which compels workers to skimp and abstain while property owners may idle and luxuriate.

Wherever one group in a community secures large income return without participating in the work of creating those returns, while another group in the same community carries the burden of the work and at the same time receives a meager share of the product of its labor, there, sooner or later, a conflict will arise. The conflict may be peaceful, and long drawn out, like that between the English peasantry and the English landlords, or it may be dramatic, spectacular and bloody like that between the French peasantry and their landlords. The conflict will come, however, because if there is one deep-rooted conviction in the human breast, it is that each person has a right to what he earns. Crude, indeed, are the definitions, and the ideas and standards for "earning" are incomplete. Always the thought is there in its most general form, carrying with it the possibility of revolt against any economic order which denies to a man the right to his full earnings.

The economic conflict in the United States will eventually develop between property owners and the producers of wealth. A student of current American economic facts is led to the inevitable conclusion that there is only one economic contrast that can be made clear cut and definite—the contrast between service income and property income; between income secured as a return for effort, and income secured in return for property ownership.

The facts in the case point clearly to the distinction between service income and property income. The line of future contrast and of future conflict is the line which separates these two ideas.

The student will search in vain through the annals of economic history for a situation more fraught with destructive possibilities than those now confronting the American people. The recipients of property income (derived from property ownership) and of service income (paid for the expenditure of effort) face each other and prepare for the conflict. Those who have put forth the effort, declare their right to the products of that effort. Those who own property hold fast to their property and to the prerogatives which are inseparable from them.

Law, custom, and business practice have made property income a first charge on industry. There can be no considerable readjustment of income values until the pre-eminent position of property is overbalanced by some social action.

The present tendency should greatly increase the total amount of property income and the proportion of property income paid with each passing decade. Land values should continue to rise; as population grows denser, demand for land increases, and methods of using land are perfected. The returns to capital (the interest rate) show every indication of advancing. It certainly will not decrease in the near future.

Meanwhile the immortalization of capital proceeds apace. The day when capital could be easily dissipated has passed away. Accounting systems, insurance devices, depreciation funds, boards of directors, and trusteeships conserve capital, reduce risks, distribute dangers, and in general, provide against misadventures for which interest, at least in part, is supposed to be a recompense. When once created, capital does not disappear. Instead, every conceivable method has been devised to perpetuate it. It may even add to itself, as it frequently does, when earnings, instead of being used for the payment of dividends, are reinvested and turned directly into new capital.

The workers, meanwhile, are living, for the most part, a hand-to-mouth existence, successful if they are able to maintain health and keep up appearances. Against the value of the products which their energy creates, is charged the property incomes for which the labor of some one must pay. Today, the producers of wealth are saddled with an enormous property income charge which increases with each passing year—increases far faster than the increase in the population—and which, from its very nature, cannot be reduced, but must be constantly augmented.

Were there no protests from the producers of wealth, the future for capital would, indeed, be a bright one. With increasing stability, increasing safety, decreasing risks, an increasing interest rate, and increasing land values, the property owners might face a future of unalloyed hopefulness.

Fortunately, no such situation exists. On the contrary, there is every indication that, with the passing years, the producers of wealth will file a protest of ever increasing volume against an economic system which automatically gives to those who already have.

While the spirit of protest grows in intensity, the form remains a matter which future years alone may determine. An appeal to the available facts leads to the conclusion that the most effective protest the producers can make will be based on a clear recognition of the distinction between service income and property income. Shall the economic world decide that only those who expend effort shall share in the wealth which is the result of that effort? Shall the economic world decide that each person expending effort is entitled to all the value for which his effort is responsible—no more and no less? Shall the economic world set its stamp of approval on effort, and its stamp of disapproval on parasitism, by turning the income from activity into the hands of workers, and denying income to all others? Has the time arrived when a few may no longer live in idleness upon the products created by those who give their lives to labor? Shall not the social blessing be bestowed upon those who labor and the social curse be hurled upon the idler and the wastrel? Lo! these many years has mankind looked forward to a day when economic justice could prevail. Is not this the day and this new century the seed-ground for this new idea?

Who shall say? Who but those who carry the burden of production, and are bound by the bonds of economic necessity to the tread-mill of toil?

The hope of America lies in its workers. To them the nation owes its existence. Upon them rests the possibility of continued growth. The worker must be encouraged and the idler penalized.

Pay should be a reward for work; not for ownership which leads to idleness.

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1. This same line of argument and much of the following material will be found in "Income," Scott Nearing. The MacMillan Company, Chapter 7.