CHAPTER II

THE NATIONAL INCOME

In considering and estimating the national income it is necessary to remind ourselves, in the first place, that our production, our exports and our imports, alike consist of both goods and services. The processes of thought and action result in the conception, production, distribution and use of ponderable and imponderable commodities. In an advanced community the greater part of the material and immaterial productions which are the expressions of its various activities becomes the subject of exchange. The many exchanges are made by reference to a common standard, and thus we are enabled to measure, in terms of money, the greater part of the national income. There remains a not inconsiderable production of ponderable and imponderable things which it is difficult or impossible to measure in terms of money, but upon which largely depends the happiness of a people. The material produce which does not become the subject of exchange, includes several very important items, amongst which may be mentioned the produce of the gardens or allotments of many agricultural labourers, and the production of clothing and the cooking of food by the women of the middle and lower classes. The immaterial things which do not come into the market are exceedingly important, especially to the poor. The household work of a poor woman with a husband and several children, if it could be measured in terms of money, would be worth a considerable sum. The imponderable part, the managing, the careful buying, the arranging, the cleaning, the serving, added to the manufacturing part, the cooking and the stitching, go often to make a sixteen-hours' working day, and who shall place a market price upon each of the sixteen hours? In the well-to-do household we also find the woman active for some fourteen or sixteen hours a day, but the product of the hours is more often immaterial than in the poor man's home. Thus the care of servants has been known to cause the expenditure of much time and anxiety by women of large income. A rich woman who has studied under Marchesi may exercise in private, to solace her father or lover, a soprano worth one shilling per note in the public concert-room. It is worth no less in the drawing-room, but in estimating the national income we have to neglect its market value just as we must neglect that of the poor woman's apple-pie.

With this reminder as to the production of unexchanged commodities, which, while important, are yet but an exceedingly small part of the product of the entire activities of our people, I proceed to an examination of the money value of that greater part of the product which is bought and sold.

The collection of the Income Tax makes a more or less complete inquisition into the profits or salaries received or earned by those whose incomes exceed £160 per annum. Below that limit income tax is not payable, but a small amount of the income of persons with less than this £3 per week does actually come under the review of the Commissioners.

If we take the figures of the latest period of which we have record, we find that in the financial year 1908-9 (_i.e._ the twelve months ended March 31st, 1909) the following particulars of gross incomes were ascertained by the Inland Revenue Officials (fifty-third Report of the Commissioners of Inland Revenue, Cd. 5308, p. 105):—

GROSS AMOUNT OF INCOME BROUGHT UNDER REVIEW IN 1908-9

Schedule A. Profits from the ownership of lands, houses, railways, mines, etc. £269,900,000

Schedule B. Profits from the occupation of lands (Farmers' Tax) 17,400,000

Schedule C. Profits from British, Indian, Colonial and Foreign Government Securities 47,500,000

Schedule D. Profits from Businesses, Concerns, Professions, Employments, etc., including certain profits from places abroad 565,600,000

Schedule E. Salaries of Government, Corporation, and Public Company Officials 109,600,000 -------------- £1,010,000,000 --------------

The following table shows the growth of the aggregate during the past fifteen years:—

GROSS PROFITS ASSESSED TO INCOME TAX (_From Inland Revenue Report_)

1893-4 £673,700,000 1894-5 657,100,000 1895-6 677,800,000 1896-7 704,700,000 1897-8 734,500,000 1898-9 762,700,000 1899-1900 791,700,000 1900-1 833,300,000 1901-2 867,000,000 1902-3 879,600,000[1] 1903-4 902,800,000[2] 1904-5 912,100,000 1905-6 925,200,000 1906-7 943,700,000 1907-8 980,100,000 1908-9 1,010,000,000

It should be observed that these figures are for gross income, and some adjustments have to be made before we can arrive at the total income of that part of the nation which has the mingled pleasure and pain of paying Income Tax.

From the £1,010,000,000 brought under review in 1908-9, the Inland Revenue authorities allowed the following deductions before arriving at taxable incomes:—

(_a_) Exemptions in respect of incomes under £160 per annum £58,400,000

(_b_) Abatements on incomes ranging from £160 per annum to £700 per annum 120,300,000

(_c_) Life Insurance Premiums 10,500,000

(_d_) Charities, Hospitals, Friendly Societies, etc. 11,800,000

(_e_) Repairs to Lands and Houses 40,100,000

(_f_) Wear and tear of Machinery and Plant 22,900,000

(_g_) Other Allowances 52,700,000 ------------ Total Deductions £316,700,000 ============

So that Income Tax in 1908-9 was actually collected not upon £1,010,000,000 but upon £693,300,000.

But we have not to make all the above deductions in arriving at the actual income of the income tax paying class. We have only to deduct those items which are not the real income of that class, viz.:—

(_a_) Exemptions in respect of incomes under £160 £58,400,000 (_d_) Charities, Hospitals, etc. 11,800,000 (_e_) Repairs to Lands and Houses 40,100,000 (_f_) Wear and tear of Machinery 22,900,000 (_g_) Other Allowances 52,700,000 ------------ £185,900,000 ============

Deducting these items we get:—

GROSS ASSESSMENTS TO INCOME TAX CORRECTED[3]

Gross Assessments 1908-9 £1,010,000,000 Less Deductions as above 185,900,000 -------------- £824,100,000 ==============

This figure may be compared with the £719,500,000 given on page 11 of "Riches and Poverty" (1905) for the fiscal year 1902-3. The increase is no less than £104,600,000 in five years, and this increase is especially commended to the notice of those critics who have worked so hard to whittle away a little from my estimates of 1903-4. The onward sweep of the figures has been magnificent; and accomplished facts now provide the apologists of the rich with the task of explaining away another £100,000,000 or so per annum.

To resume, the £824,100,000 arrived at above, handsome figure as it is, is certainly not complete. There is unquestionably still a considerable amount of evasion under Schedule D of the Income Tax. The landlords of Schedule A cannot escape assessment because the tax is paid by occupiers and deducted from rent, but there is a certain amount of under-assessment. Under Schedules B, C and E evasion is, for the most part, difficult or impossible. Under Schedule D,[4] however, a large number of incomes are understated and many which ought to be assessed escape altogether. It is almost as true to-day as it was in 1861 that, in the words of Mr Lowe's Draft Report to the Income Tax Committee of that year, "Schedule D depends on the conscience of the tax-payer who often, it is to be feared, returns hundreds instead of thousands, and who is certain to decide any question that he can persuade himself to think doubtful, in his own favour." It is recorded by the Income Tax Commissioners in their Twenty-Eighth Annual Report that when, in 1803, taxation at source was substituted for self-assessment in the case of all income but business profits, the effect was to make the produce of the tax at 5 per cent. in 1803 almost equal to that of 10 per cent. in 1799, showing that in the earlier year those who assessed themselves unaccountably overlooked one-half of their incomes. Dudley Baxter reminds us in his classical paper on the National Income[5] that in his Budget Speech in 1853 Mr Gladstone quoted a remarkable instance of evasion. When Cannon Street Station was constructed, twenty-eight persons claimed compensation for the loss of annual profits which they estimated at £48,000. The jury, after considering their case, awarded them £27,000. They had returned their profits to the Income Tax Commissioners at £9,000! In recent years the formation of limited liability companies has frequently revealed profits far in excess of those previously stated under Schedule D. Whatever figure we allow for such evasion must, in the nature of the case, be conjectural. In "Riches and Poverty" (1905), p. 13, I estimated evasion and avoidance as 20 per cent. of the declared profits. Twenty per cent. of £365,000,000 (the profits of "Businesses, Professions, etc," assessed under Schedule D) in 1902-3 was £73,000,000. We have since had remarkable proof of the reasonableness of this estimate. In 1907-8 the gross assessments to Income Tax rose by £36,000,000 (see p. 11). There is little doubt that part of the rise was due to Mr Asquith's enactment (Finance Act, 1907, Clause 19) differentiating between earned and unearned incomes _on the condition that earned or partly earned incomes up to £2,000 a year were declared by their owners_. For the financial year 1907-8 does not include the profits of the good year 1907 which (see Chap. 21) were not assessed under our averaging system until 1908-9. It was the new personal declarations which led to the revelation of income hitherto escaping tax, and part of the £36,000,000 rise in assessments in 1907-8 is undoubtedly part also of the estimate of £73,000,000 escaping tax which I made in "Riches and Poverty" (1905). For 1908-9, therefore, I reduce my estimate of income escaping tax accordingly. I now take it as £60,000,000 in 1908-9.

Another point for consideration is the amount of profit received by persons in this country from places abroad. It is exceedingly difficult to tax the whole of such profits. In 1908-9, £88,800,000, made up as follows, was ear-marked by the Commissioners as profit received from abroad:—

ASSESSED PROFITS EAR-MARKED AS RECEIVED FROM ABROAD, 1908-9

(1) India Government Stocks, Loans } and Guaranteed Railways } £9,000,000 (2) Colonial or Foreign Government } Securities } 23,200,000 (3) Colonial or Foreign Securities, other than Government, Coupons, and Oversea Railways other than those in (1) 56,600,000 ----------- £88,800,000 ===========

The total profit received or receivable yearly in this country from oversea investments it is impossible to estimate precisely, but there is good reason to believe that it is not less than £140,000,000. It should not be imagined, however, that the whole of the difference between this sum and that ear-marked by the Commissioners escapes assessment. Undoubtedly some of it eludes taxation, but a considerable sum, it should be remembered, is included with ordinary business profits under Schedule D. A few illustrations will make this clear. Messrs Armstrong, Whitworth & Co. have a shipyard in Italy the profits of which are received in this country, but are not distinguished from the ordinary profits of the company in the income-tax assessment. The same is true of such a firm as Lipton Ld. which owns extensive tea plantations in Ceylon. The profits made in Ceylon and remitted to this country are included in and assessed with the general profits of the business. There are a large number of firms which similarly own foreign or colonial property or branches which are organic parts of their businesses and are often the sources of their materials. When allowance is made for these facts it is probable that some £115,000,000 of oversea profits (including the nearly £90,000,000 or so actually ear-marked) are assessed to income tax, leaving but about £25,000,000 unassessed.

Accepting these figures, we arrive at the following estimate of the total income enjoyed by those persons who have over £3 per week:—

INCOME OF PERSONS ENJOYING OVER £160 PER ANNUM, 1908-9

Gross Assessments to Income Tax Schedules A, B, C, D, and E £1,010,000,000 _Deduct_ Items not representing real income, etc. (see page 12) 185,900,000 -------------- £824,100,000 _Add_ (_a_) For under-assessment under Schedule D 60,000,000 (_b_) Foreign profits escaping tax 25,000,000 ------------ £909,100,000 ============

The foregoing figures relate to the fiscal year ended March 31st, 1909, the latest period for which detailed figures are available.

It is necessary to point out again that while this fiscal year 1908-9 covered the assessment of the calendar year 1907, which was a year of great profit-making, it did not fully assess the profits of that boom year. Under Schedule D of the Income Tax the profits assessed in 1908-9 were the profits of the three years 1905, 1906, and 1907. That is to say, the figures just arrived at, £909,100,000, _are an understatement of the true aggregate incomes of those having upwards of £160 a year in 1907_. The actual income of the income tax payers in 1907 greatly exceeded £909,000,000.

In "Riches and Poverty" (1905) my equally conservative estimate of the income tax payers' aggregate income for 1903-4 was £830,000,000. We therefore get the following comparison:—

GROWTH OF AGGREGATE INCOME OF PERSONS ENJOYING OVER £160 A YEAR

1903-4. Estimate of "Riches and } Poverty" (1905) } £830,000,000 1908-9. Estimate of this Edition } (1910) } 909,000,000 ------------ Increase £79,000,000 ============

And this remarkable growth in five years is shown in spite of the fact that I have allowed for £13,000,000 of income tax assessment as being due to increased severity of collection, for I have assumed that £13,000,000 more of existing home profits were revealed in 1908-9 than in 1903-4.

Now let us turn to the incomes which do not exceed £160 a year, and which, therefore, are not assessable to income tax.

First of all, we have the class of small incomes which lie between the manual workers and the income tax payers. We cannot hope, in view of the poverty of the information which our present Census methods place at our disposal, to estimate this part of the national income with any degree of confidence, and we can at best arrive at a rough approximation. I estimate that in 1908, of our "occupied" population, about 3,100,000 were neither income tax payers on the one hand nor manual labourers on the other hand. That is to say, they were petty tradesmen, civil servants, clerks, shopmen, travellers, canvassers, agents, teachers, farmers, inn-keepers, lodging-house-keepers, pensioners, and so forth, whose profits or salaries are below £3 per week. At what rate can we estimate their average income?

The total includes a very considerable number of young persons between 10 and 20 years of age. The teachers, some 250,000 in number, include pupil teachers of both sexes whose remuneration begins at a few shillings per week, and as a whole the teaching profession is wretchedly paid. The commercial and law clerks, some 500,000 in number, include juniors, office boys, and poorly paid girl typists. As to shopkeepers, there is an exceedingly large number of these distributing agents whose incomes are of the slenderest dimensions. Unfortunately we do not know how many shops in the United Kingdom have an annual value of less than £20, but their number must be very great, and the petty tradesmen who keep them have to work hard for poor returns. We have also to remember the quite considerable number of shops which are branches of great distributive firms and managed by shopmen with small salaries. As to shop assistants in general, their salaries are exceedingly small. I am informed by the National Amalgamated Union of Shop Assistants, Warehousemen and Clerks that the average male assistant "living in" gets from £25 to £30 per annum plus "premiums" and board and lodging, while "living out" the average is about £74. Grocery and boot salesmen in the shops of big distributing companies, who often are not required to "live in," get from 20s. to 30s. per week. The wages of the "managers" of shops are sometimes as low as 25s. per week. As for the value of the "living in," this may be illustrated by the fact that in a certain West of London house, where "living in" is the rule, a man applied for permission to "live out." He was told that he could do so, but that only £5 per annum extra could be allowed him. In a return to the Board of Trade for the purpose of statistics, the same employer would doubtless value the same "truck" at £30 or £40 per annum. I have before me the wages paid to the young women who work for a great multiple shop firm with 200 shops; they range from 3s. to 11s. per week!

Passing to the class of commercial travellers and canvassers, there is perhaps no calling in which earnings vary so greatly. While there are a number in the income-tax class, there are thousands of men included in the class we are now considering who live on "commission only," and thousands more who are paid by generous employers 15s. to 25s. per week plus a small commission. Advertisement and book canvassers are engaged upon widely varying terms, and many of them have a very precarious livelihood.

In "Riches and Poverty," edition 1905, I wrote: "Nearly the whole of the farmers of the United Kingdom earn less than £160 per annum. Out of a total profit of £17,500,000 as much as £11,000,000 is excused on the ground that income is below £160. This £17,500,000 is the annual income of an uncertain number of the larger farmers, probably as many as 300,000, which gives an average income of about £60 per annum! In 1902-3, 302 farmers elected to have their actual profits assessed under Schedule D. They were assessed at £10,974, which gives an average of only £37 per annum. These 302 farmers paid an aggregate rental of £116,259!"

These remarks did not take sufficient account of the under-assessment of farmers' profits under Schedule B. It would probably have been nearer the mark to take one-half of the rental paid rather than the official one-third as representing farmers' profits. If we did so, the profits of 300,000 farmers would come out at say £26,000,000 instead of £17,500,000, and the average profit would run to £87 per annum. Even this correction, however, would leave the great majority of our farmers under the £160 income tax line.

These notes on some of the largest classes of persons which go to make up the order of incomes immediately under consideration will serve to show that we are dealing with working men and working women whose earnings are exceedingly small. It should also be remembered that many of them are subject to losses from terms of unemployment. Clerks and the poorer travellers have little security of tenure, and at any given time there are many out of work. Hundreds of applications are commonly received in reply to single advertisements for clerks and travellers. To the petty tradesman bad trade does not spell "unemployment," but it often spells keeping a shop which does not keep its proprietor for many months.

Taking everything into consideration, and remembering that no large incomes are introduced to weight the average, the upper limit being as low as £160 per annum, I do not think we can estimate the average income of the 3,100,000 persons at more than £75 per annum, and I should put the figure lower if I did not assume that a certain amount of interest is drawn by some members of the group. This estimate gives £232,000,000 as the annual income of those who are not "manual" workers, but whose incomes are not assessed to income tax because they are less than £3 per week.

I have thus assigned to these members of the lower middle classes no greater earning power than they possessed in 1903. I think I am well advised in this. As will be seen later, wages have been almost stationary of late, and there is no reason to believe that clerks, commission men, etc., have fared better. Even as I write there comes to me a letter from a man whom I employed when editing a newspaper some years ago. He says (August 1910), "My present wage is 25s. per week, with no allowance for lodging out when doing country work. It is easily understood that this is not a sum which allows of luxuries for the present or provision for the future." He is now a directory canvasser, one of thousands in the employ of a large firm of publishers.

Since these pages went to the printer, a Committee of the British Association has issued a Report (1910) on the group of incomes just referred to which largely confirms the conclusions I presented in 1905. The Committee arrive at an average earned income of £71 against the £75 which I consider to cover both earned and unearned incomes. They treat of 4,000,000 people where I treat of 3,100,000, but that is because, while I exclude manual labourers as a class, the Committee include many manual labourers. Thus the Committee include sweeps in this intermediate class, while I include them with the manual workers whose earnings we shall next consider.

We now come to the largest class of the working population, the "manual workers" commonly so called.

Including persons of both sexes and all ages, I estimate from the census returns the number of manual workers in our population of 44,500,000 at 15,500,000. This number includes, in addition to all those engaged in industrial, agricultural, and domestic service, soldiers, sailors, policemen, and postmen.

In 1886 the Board of Trade conducted the only Census of Wages made in the United Kingdom prior to 1907. (We have not yet had a report on the later Census.) Sir Robert Giffen, who in his then capacity as Assistant Secretary of the Board of Trade in charge of the Commercial Department, directed the Census, describes in his General Report issued in 1893 (C. 6889) the method adopted. Schedules were sent out to employers, after careful consideration of the circumstances of each industry, specifying the various occupations of each trade and asking for details as to rates of wages, the numbers employed at each rate, the hours of labour, and so forth.

As to industrial employment generally the following trades were investigated: Cotton, woollen, worsted, linen, jute, hemp, silk, carpet, hosiery and lace manufacture, smallwares, flock and shoddy manufacture, coal and iron mines, metalliferous mines, paraffin oil works, slate mines and quarries, granite quarries and works, stone quarries, china clay works, police, construction and care of roads, pavements and sewers, gasworks, waterworks, pig-iron manufacture, general engineering, iron and brass foundries, iron and steel, shipbuilding (iron and wood), tin plate manufacture, saw mills, brass and metal wares, cooperage works, coach and carriage building, boot and shoe making, breweries, distilleries, brick and tile making, chemical manure manufacture, and railway carriage and wagon building.

The details obtained related to 355,838 men, 80,253 boys, 151,263 women and 48,772 girls, and were considered by Sir Robert Giffen to be "representative of, perhaps, three-fourths of the manual labour classes of the United Kingdom." He also expressed the opinion that the "broad results shown by the census summary would not be sensibly modified by including the great mass of other employments not comprised in that summary."

In the following table the Board of Trade summarised the proportion of men, women, boys and girls working at various rates of wages, in 1886, in the industries which I have mentioned:—

WAGES IN 1886. THE BOARD OF TRADE SUMMARY OF RATES OF WAGES (NOT ACTUAL EARNINGS) DERIVED FROM THE DETAILED EXAMINATION OF 38 SELECTED INDUSTRIAL OCCUPATIONS

Men. Women. Boys. Girls. Per Cent. Per Cent. Per Cent. Per Cent.

Half Timers -- -- 11.9 27.2 Under 10s. per week 0.1 26.0 49.7 62.5 10s. to 15s. " 2.4 50.0 32.5 8.9 15s. to 20s. " 21.5 18.5 5.8 1.4 20s. to 25s. " 33.6 5.4 0.1 -- 25s. to 30s. " 24.2 0.1 -- -- 30s. to 35s. " 11.6 -- -- -- 35s. to 40s. " 4.2 -- -- -- Above 40s. " 2.4 -- -- -- ----- ----- ----- ----- Total 100.0 100.0 100.0 100.0 ----- ----- ----- ----- Average Rate of _s._ _d._ _s._ _d._ _s._ _d._ _s._ _d._ wages 24 9 12 11 9 2 6 5

It will be seen that the average rate of men's wages came out at 24s. 9d. per week or, say, £64 per annum in a year of constant occupation. The weighted average rate for both sexes and all ages comes out at 17s. 6d. per week or, counting 52 weeks' work in the year, £45. 10s. per annum.

The Board of Trade also investigated the rates of wages in other occupations, and the following table compares the £64 of the adult males in general industries with the rates of wages paid to adult males in (1) railway service, (2) building, (3) mercantile marine, (4) Royal Navy, (5) Army, (6) domestic service, (7) asylums, (8) hospitals (in 1886 unless another date is given):—

AVERAGE RATES OF WAGES (NOT ACTUAL EARNINGS) FOR MEN IN 1886

Per Annum Average of Wage Census (38 Industrial occupations) £64 Railways (for 1891) 60 Building Trades (for 1891) 73 Seamen: Mercantile Marine, including estimated } value of food and berths } 65 Royal Navy, including value of food, etc. 65 Army (Non-Coms, and men). Including value } of food, etc. } 48 Domestic Servants (large households). Including } value of food, etc. } 68 Employees in Lunatic Asylums. Including value } of food, etc. } 60 Employees in Hospitals and Infirmaries. Including } value of food, etc. } 61 --- Unweighted Average £62 ---

In his report already referred to, Sir Robert Giffen, after detailing the average rates of the above table, says (p. xxxiii): "Thus in nearly all these trades the average rates are about the same as the average rate in the Census of Wages Summary." But the table does not include the badly paid agricultural labourer, the largest group of all, and the figures for seamen, etc., are, it should be observed, swollen by estimates of the value of board and lodging.

Finally, Sir Robert Giffen arrived at the general conclusion that "the broad results shown by the census summary would not be sensibly modified by including the great mass of other employments not comprised in that summary."

In January 1893 Sir Robert Giffen gave evidence before the Labour Commission and submitted the facts I have detailed. He prepared a general estimate of the proportion of the national income then taken by the wage-earning classes, and his evidence on this point (questions 6909 to 6914) is summarized in the following table:—

EARNINGS OF MANUAL LABOURERS IN 1886 (Sir Robert Giffen's estimate for the Labour Commission)

Number. Annual Average Aggregate Earnings. per Wage-Earner. Men 7,300,000 £60 0 0 £439,000,000 Women 2,900,000 40 0 0 118,000,000 Boys 1,700,000 23 8 0 46,000,000 Girls 1,260,000 23 0 0 29,000,000 ---------- --------- ------------ 13,200,000 £48 0 0 £633,000,000 ---------- --------- ------------

There can be no question that this estimate of Sir Robert Giffen's somewhat exaggerated the actual earnings of manual labourers as a whole. In the first place, it was too much to assume that the 24s. 9d. per week or £64 per annum was representative of the whole of adult male labour. Without introducing agricultural labourers (the largest group in the country), general labourers, postmen, and other ill-paid workers, the unweighted average of the table on page 24 is £62. If £60 per annum had been given as the average _rate of wages_ of all the adult male workers in 1886 it would probably have been an exaggeration. It was not given as a rate of wages, however, but as the actual earnings of the men after all allowance made for short time, unemployment, sickness, accidents, strikes, lockouts, stress of weather, etc. Sir Robert Giffen appears to have assumed that all the adult male workers of the United Kingdom were employed on the average about 50 weeks out of 52, and were paid at the average rate of £64 per annum!

In 1866 Leone Levi, in estimating the manual workers' earnings, assumed that four weeks per annum were lost. Dudley Baxter in 1867 pointed out, in criticism of Leone Levi, that if four weeks' "play" were all that need be allowed "England would be a perfect Paradise for working men."[6] Dudley Baxter, in view of the circumstances of his day, allowed ten weeks for "play" in making his estimate, and there can be no question that he was nearer the truth than Levi. At the present day the level of employment is very much the same as it has been for the past forty years, while sickness, accidents, and the weather are still with us. We need not wonder, then, if Professor A. L. Bowley, who has given the subject of wages so much attention, bases his estimates upon the loss of six weeks' work per annum through sickness and holidays, and makes an additional allowance for unemployment, while also assuming that 10 per cent. of the working population only get casual or irregular work, bringing them in about half the amount shown in the Wage Census.[7]

If the estimate given to the Labour Commission had allowed for six weeks' "play," the average earnings of men, women, boys and girls would have come out at £40. 5s. per annum instead of £48, and the aggregate earnings, therefore, at much less than £633,000,000. Leone Levi's estimate for 1884, allowing for only four weeks' play in the year, was £521,000,000. This figure is too large, but it is over £100,000,000 less than that of Sir Robert Giffen.

I now take the Wage Census figure of 1886 as a basis and correct it for the upward movement of wages since that date by the wage index numbers of the Board of Trade (Cd. 4954, which slightly corrects the index numbers of Cd. 1761, used in "Riches and Poverty," 1905 edition, p. 24), which are based on the mean of over 150 rates:—

Average Wage (Men, Women, and Board of Trade Year. Children) per Index Number Week. 1900 = 100.* _s._ _d._ 1886 (Wage Census figure) 17 6 82.86 1900 " " 21 1 100.00 1908 " " 21 3 101.02

* The meaning of this column is that, if the average wage of 1900 be represented by 100, the average wage of 1886 is represented by 82·86 and that of 1908 by 101·02.

We thus arrive at 21s. 3d. as the average weekly wage of the manual workers in 1908. There is much reason to believe that this estimate errs on the side of liberality. It is unfortunate that we have not a compulsory wage census, and the method of estimation used here can pretend to no more than approximation. It neglects the important fact that between 1886 and 1908 the ranks of women and child workers have swollen at the expense of adult male workers. The 15,500,000 (estimated) manual workers of 1908 consisted as to a larger proportion of women and children than the 13,200,000 (estimated) manual workers of 1886. I regard the 21s. 3d., therefore, as the most liberal figure that can be put forward as the average earnings of the men and women and child workers of the United Kingdom in 1908.

We have now to decide what allowances should be made (1) for the great army of casual, incompetent, and aged or ageing workers who figure in the census returns as following definite occupations, and (2) for the loss of time through unemployment, sickness, accidents, stress of weather, strikes, lockouts, "bank" and other holidays, etc., in the case of the remaining workers.

With regard to the first item, I do not think we are justified in estimating the incompetents and casuals at less than 1,000,000 out of the 15,500,000. For the purposes of the present estimate, I assume that these 1,000,000 workers earn, on the average, £25 per head per annum, or an aggregate of £25,000,000. My view is that this is a liberal estimate of the earnings of what may be termed the camp-followers of the industrial army.

With regard to the remaining 14,500,000, we have to form an estimate of the amount of time lost per annum through voluntary or enforced leisure. No certain information exists, and the widest differences of opinion have been expressed on the subject. As I have said above, Dudley Baxter took ten weeks; Leone Levi took four weeks; Mr A. L. Bowley takes six weeks plus a further allowance for unemployment.

The Board of Trade, in their recent examination of fluctuations in employment, made an analysis from the records of the Amalgamated Society of Engineers, combined with information supplied by employers, of the time lost in the engineering trade. They came to the conclusion that, in an average year, perhaps 8 per cent. of working time was lost from all causes, and expressed the opinion that in a good year the loss might fall to 4 per cent. and in a bad year rise to 15 per cent. or more (Cd. 2337, p. 101). This would mean, for the engineering trade only, a loss of time varying from only two weeks in the year to as much as eight weeks or more.

In other employments the widest variations exist. There are the quite regular employments, such as the army, the navy, the postal service, the police service, and, for the greater part, the railway service. There are violently fluctuating employments, such as the building trades and the shipbuilding trades. In all alike, sickness takes its toll, and unemployment arises from accidents, from disputes, from "drink," and from seasonal influences and depression, while, on the other hand, overtime occasionally goes to swell the aggregate earnings.

I make the assumption that the average working year of the 14,500,000 remaining wage-earners consists of 44 weeks. Applying the average wage already arrived at (21s. 3d. per week), we get an average annual earning of, say, £46. 15s., which gives us £678,000,000 as the probable aggregate earnings of the 14,500,000 workers. Adding the £25,000,000 assumed to be earned by the remaining 1,000,000, we arrive at £703,000,000 as the total earnings of the manual labourers in 1908.

It is probable that this calculation does not take sufficient account either of the changes of occupations since 1886, or, as has been already pointed out, of the changes in the respective proportions of men, women and children employed. The average wage of the 1886 Census, taken as the basis of the calculation, was, it is necessary to insist, exaggerated by the omission of the most ill-paid workmen, while the returns upon which it was based, framed as they were by employers, are only too likely in a proportion of cases to have put the wages paid in the most favourable light. The employers again, who filled in the forms, were only some 75 per cent. of the firms applied to by the Board of Trade, and it is a fair inference that those who neglected to reply had no excessive pride in the records of their wage-sheets. I submit, therefore, that as the 1886 average wage figure is a liberal estimate,[8] the figure which I have deduced from it does not, in all probability, err on the side of under-estimation.

Professor Bowley estimates the total paid in wages in 1901 as £705,000,000,[9] and the Board of Trade in the Fiscal Blue Book of 1903 (Cd. 1761) say:—

"From investigations based on the Board of Trade Census of Wages (1886) combined with the recorded changes of wages since that date and the distribution of the working population among various industries as shown in the census returns, the total wages bill of the United Kingdom has been estimated at between £700,000,000 and £750,000,000, according to the state of employment."

The estimate which I have given, therefore, differs but little from those of Professor Bowley and the Board of Trade.[10] I prefer to use the smaller figures on several grounds. In the first place, the allowance for "play" is a conservative one. In the second place, I have the gravest doubts as to the propriety of including in the estimates of the wages of domestic servants, sailors, and others, an allowance for the value of "lodging," as is done in the figures used. To include so many shillings a week for the accommodation afforded by a seaman's bunk or a general servant's fraction of an attic is to flatter "earnings" out of all resemblance to the truth. The free cottages and other allowances to agricultural labourers are often of a scarcely marketable character. We may be justified in valuing an unhealthy hovel at 1s. 6d. per week, in view of the fact that the labourer, if he had it not, would need to pay rent elsewhere, but in too many cases the "cottage" is fit not for inhabitation but for demolition. In the third place, no allowance is made for the excessive rents paid by workmen in London and other large towns. These rents are really part of the working expenses of the wage earners, and there is as good ground for making deductions on account of them as there is for deducting wear and tear of machinery in the case of income-tax incomes.

We can now arrive at an approximate estimate of the National Income as a whole in 1908-9 (say 1908).

THE NATIONAL INCOME IN 1908

(1) Persons with incomes which exceed £160 per annum £909,000,000 (2) Persons with incomes below £160 per annum:— (_a_) Persons earning small salaries, petty tradesmen, etc. 232,000,000 (_b_) The wage-earning classes 703,000,000 -------------- £1,844,000,000 ==============

It will be seen that _the income tax exemption limit of £160 per annum splits the national income into two almost equal parts_. Of a total income amounting to £1,844,000,000 in 1908, those with over £160 per annum took £909,000,000, while those with less than £160 per annum took £935,000,000.

[Footnote 1: Figures examined in "Riches and Poverty" (1905), Chapter 2.]

[Footnote 2: In "Riches and Poverty" (1905), Chapter 2, I estimated this figure at £900,600,000.]

[Footnote 3: It has been too freely assumed in calculating the national income that the gross assessments represent actual income.]

[Footnote 4: As Schedule D is an exceedingly important gauge of national prosperity, it may be well to remind the reader of its precise application. It is a tax upon all income derived from trades, industries and professions, and from all sources not specified under the other four Schedules. Profits from businesses established in places abroad are assessable under it. The assessments are made annually, and are generally based upon the mean of the income received during the preceding three years. Fuller particulars will be found in Chapter 21.]

[Footnote 5: "National Income." R. Dudley Baxter. Macmillan & Co. 1868.]

[Footnote 6: "The National Income," Dudley Baxter.]

[Footnote 7: "Economic Journal," Sept. 1904. Page 458.]

[Footnote 8: Take, for example, the boot and shoe trade. The Wage Census for 1886 (Cd. 6889, p. xiii.) gives the average earnings in boot and shoe factories (both sexes and all ages) as £48 per annum. In 1908, more than twenty years after, the Board of Trade "Labour Gazette" shows, from employers' returns, that (in a July week) 60,337 boot workers took only £58,147 in wages, which is about 19s. per week or £49, 8s. in a year of 52 such weeks. With regard to this trade, it is clear that either the 1886 estimate was too liberal, or that earnings have been practically stationary in the twenty years.]

[Footnote 9: "Economic Journal," September 1904.]

[Footnote 10: If, however, the reader prefers to rely upon the larger estimates he will find that the general conclusions of this and the following chapter remain practically unaltered.]