Progress and Poverty by Henry George (most important books of all time txt) 📕

gratify their desires with the least exertion⁠—operates to establish and maintain this equilibrium between wages and interest.

This natural relation between interest and wages⁠—this equilibrium at which both will represent equal returns to equal exertions⁠—may be stated in a form which suggests a relation of opposition; but this opposition is only apparent. In a partnership between Dick and Harry, the statement that Dick receives a certain proportion of the profits implies that the portion of Harry is less or greater as Dick’s is greater or less; but where, as in this case, each gets only what he adds to the common fund, the increase of the portion of the one does not decrease what the other receives.

And this relation fixed, it is evident that interest and wages must rise and fall together, and that interest cannot be increased without increasing wages; nor wages lowered without depressing interest. For if wages fall, interest must also fall in proportion, else it becomes more profitable to turn labor into capital than to apply it directly; while, if interest falls, wages must likewise proportionately fall, or else the increment of capital would be checked.

We are, of course, not speaking of particular wages and particular interest, but of the general rate of wages and the general rate of interest, meaning always by interest the return which capital can secure, less insurance and wages of superintendence. In a particular case, or a particular employment, the tendency of wages and interest to an equilibrium may be impeded; but between the general rate of wages and the general rate of interest, this tendency must be prompt to act. For though in a particular branch of production the line may be clearly drawn between those who furnish labor and those who furnish capital, yet even in communities where there is the sharpest distinction between the general class laborers and the general class capitalists, these two classes shade off into each other by imperceptible gradations, and on the extremes where the two classes meet in the same persons, the interaction which restores equilibrium, or rather prevents its disturbance, can go on without obstruction, whatever obstacles may exist where the separation is complete. And, furthermore, it must be remembered, as has before been stated, that capital is but a portion of wealth, distinguished from wealth generally only by the purpose to which it is applied, and, hence, the whole body of wealth has upon the relations of capital and labor the same equalizing effect that a flywheel has upon the motion of machinery, taking up capital when it is in excess and giving it out again when there is a deficiency, just as a jeweler may give his wife diamonds to wear when he has a superabundant stock, and put them in his showcase again when his stock becomes reduced. Thus any tendency on the part of interest to rise above the equilibrium with wages must immediately beget not only a tendency to direct labor to the production of capital, but also the application of wealth to the uses of capital; while any tendency of wages to rise above the equilibrium with interest must in like manner beget not only a tendency to turn labor from the production of capital, but also to lessen the proportion of capital by diverting from a productive to a nonproductive use some of the articles of wealth of which capital is composed.

To recapitulate: There is a certain relation or ratio between wages and interest, fixed by causes, which, if not absolutely permanent, slowly change, at which enough labor will be turned into capital to supply the capital which, in the degree of knowledge, state of the arts, density of population, character of occupations, variety, extent and rapidity of exchanges, will be demanded for production, and this relation or ratio the interaction of labor and capital constantly maintains; hence interest must rise and fall with the rise and fall of wages.

To illustrate: The price of flour is determined by the price of wheat and cost of milling. The cost of milling varies slowly and but little, the difference being, even at long intervals, hardly perceptible; while the price of wheat varies frequently and largely. Hence we correctly say that the price of flour is governed by the price of wheat. Or, to put the proposition in the same form as the preceding: There is a certain relation or ratio between the value of wheat and the value of flour, fixed by the cost of milling, which relation or ratio the interaction between the demand for flour and the supply of wheat constantly maintains; hence the price of flour must rise and fall with the rise and fall of the price of wheat.

Or, as, leaving the connecting link, the price of wheat, to inference, we say that the price of flour depends upon the character of the seasons, wars, etc., so may we put the law of interest in a form which directly connects it with the law of rent, by saying that the general rate of interest will be determined by the return to capital upon the poorest land to which capital is freely applied⁠—that is to say, upon the best land open to it without the payment of rent. Thus we bring the law of interest into a form which shows it to be a corollary of the law of rent.

We may prove this conclusion in another way: For that interest must decrease as rent increases, we can plainly see if we eliminate wages. To do this, we must, to be sure, imagine a universe organized on totally different principles. Nevertheless, we may imagine what Carlyle would call a fool’s paradise, where the production of wealth went on without the aid of labor, and solely by the reproductive force of capital⁠—where sheep bore ready-made clothing on their backs, cows presented butter and cheese, and oxen, when they got to the proper point of fatness, carved themselves into beefsteaks and roasting ribs; where houses grew from the