CHAPTER VIII

THOSE WHO WORK AND THOSE WHO WAIT

We have seen that, although the sum of the land rents taken by the owners of the British area is actually very great, it is small as compared with the total of the national income. We have also seen that there is a simple explanation of this. We have become a manufacturing and a town-dwelling people, and the area occupied by our factories and towns is very small. The chief demand for land is confined to the outskirts of such towns as are increasing in size. The landlords of the big towns have their pockets increasingly filled with unearned increment, while the landlords of the empty country are reminded in the most practical possible way of that inherent quality of immobile area to which we have referred as the distinguishing characteristic of land. When we speak of a town as growing rapidly we refer to the growth in relation to the area of the town, not in relation to the area of the country. I reiterate this point because, when it is once realised, we see our way as a community to an exceedingly simple solution of many important problems. We speak of the enormous size of London. As a matter of fact, the whole area administered by the London County Council is but 75,000 acres. Again, "Greater London" contains but 443,000 acres, and yet is the dwelling-place of 7,000,000 people, or far more than the entire population of the 2,420,000,000 acres of the Dominion of Canada.

We shall return to the foregoing considerations hereafter.

As a result of the small amount of land required as a base for the establishment of industrial plant, or for the warehouse or stores of a distributive business, it is usually but a small part of the total product of an industrial or commercial organisation which is taken by the owner of its site. That this is usually true is obvious from the fact that of a total annual income of £1,840,000,000 the owners of area are able to exact but £106,000,000. Of this £106,000,000 again, as was pointed out in the last chapter, £35,000,000 is exacted from farmers who make the meagre profit of from £17,000,000 to £26,000,000 per annum over and above their rentals. Out of the teeming populations of the towns, with all their manufacturing and commercial activities, the owners of area are able to draw but about £57,000,000.

Now let us revert to the extraordinary figures which are the basis of the frontispiece to this volume.

We have shown that, of a total income of £1,840,000,000, as much as £634,000,000 is taken by a small group of persons numbering 280,000, or with their families 1,400,000. The great landowners are obviously amongst these 280,000 persons, and the greater part of British land rents are therefore included in their income. But, if the whole of it be included, there still remains £528,000,000 of income not derived from land rents, and taken by a very small number of persons.

The explanation of this fact is to be found in the monopoly of capital which we examined in Chapter 6. In so few hands is the greater part of the accumulated capital of the country concentrated that, in spite of the fall in the rate of interest, the lion's share of the national income is secured by a few. Each "dose" of capital may produce a smaller return than of old, but there are more "doses" of capital in the possession of the few capitalists, and these, in relation to the whole population, add but very slowly to their numbers, so slowly that we get the extraordinary congestion of capital revealed by the Death Duty returns and pictured in the table in pages 74 and 75.

Thus the monopoly of capital is a more far-reaching thing than the monopoly of land, and it secures for a number of people almost as limited as the great land-owning class, a gross profit compared with which the sum of British land rents is insignificant.

It is of interest to show, from a number of concrete examples, how the joint product of mental and manual labour comes to be shared up between those who work and those who wait.[28]

The following particulars are extracted from recent balance-sheets of ten well-known industrial joint-stock companies, each of which is representative of hundreds of others. I shall distinguish the concerns by a letter only, for I am not criticizing individuals, but seeking to illustrate the causes which produce inequalities of wealth.

Company A owns a well-known proprietary article. The balance-sheet examined is dated 1904. Its issued capital is £1,000,000, and there are no Debentures. A Profit and Loss a/c shows that the year's sales amounted to £411,000. The total expenditure incurred in manufacturing the year's production was only £218,000. There was therefore a balance of profit amounting to £193,000. That is to say, after paying all outgoings, including wages, salaries, rent, advertising, and so forth, produce which cost £218,000 to manufacture was sold for nearly twice as much. A dividend of 20 per cent. was paid for the year, and £30,000 carried to reserve. What, then, did those get who worked to produce the goods which were sold for £411,000? Obviously, a part only of the £218,000, probably not more than £100,000. If it be taken as £100,000, we see that those who worked to make the products of the Company (including the brain work of managers, foremen, etc.) obtained only £100,000, while the shareholders of the Company took £192,000. A great slice of the increment went into the pockets of individuals who certainly had not earned it.

Company B is a restaurant company and the balance-sheet is for 1903. It does not publish a Profit and Loss a/c. The issued capital is £189,000, but a great deal of this is "water," for bonus shares have been issued year after year. In the year under review the profits amounted to £76,000, or over 40 per cent. of the amount of the watered capital. We do not know what the Company pays in wages, but I doubt if it reaches £30,000 per annum, or one-half the amount of the year's profits. The employees are chiefly young girls who are paid a few pence per hour. This case is an exceedingly instructive one to the student of "unearned increment," because the restaurants are many in number and situated on most valuable sites. After paying the ground landlord's unearned increment, the sleeping partners in this concern gain, as they sleep, a hundredfold more unearned increment than the ground landlords.

Company C sells an article of food. The balance-sheet is dated 1903. Its issued capital is £2,000,000, and there are £500,000 of 4½ per cent. debentures. Much of the capital is represented by goodwill. The net profit for the year, after paying Directors' fees, amounted to £139,000. In spite of the enormous capital, the sleeping "ordinary" partners get 7 per cent. Again we do not know the wages paid, but it is hardly likely to be as much as the net profit of £139,000. If the employees get that sum, which is doubtful, the sleeping partners gain as much as all the workers who make and sell the products of the Company and manage and direct it.

Company D is an engineering firm. The balance-sheet is dated 1904. The issued capital is £3,500,000 and there are £1,500,000 of 4 per cent. debentures. The net profits for the year were £636,000, which sufficed, after paying debenture interest, preference dividend, directors' fees, etc., to give the ordinary shareholders 15 per cent. It is not probable that the wages paid in a year are greater than the £636,000 of net profit, but if they amount to £1,000,000, which is unlikely, the workers of the Company gain little more than the shareholders.

Company E is a restaurant company. Date of balance-sheet 1903. The issued capital is £325,000 and in addition there are £100,000 of debentures. The profits for the year amounted to £52,000. After paying debenture interest, and preference dividend, the ordinary shareholders got 16 per cent. The amount of wages paid is not known, but it is probably under £20,000. To take this liberal estimate, the workers get £20,000; the sleeping partners £52,000.

Company F is an engineering concern; the balance-sheet is for 1903. The issued capital is £5,000,000 and there are debentures for £2,250,000. The net profits for the year amounted to £556,000. After paying debenture interest and preference dividend, 10 per cent. was paid to the ordinary shareholders. Again it is impossible to state with accuracy the amount of wages paid, but it is improbable that they exceed the amount of the net profit. 5,000 men at £80 per annum would come to £400,000.

Company G is engaged in manufacturing cotton. Its capital is £10,000,000 and there are debentures for over £1,000,000. The net profit (the balance-sheet is for 1903) amounted to £2,684,000, which is a return of 25 per cent. on the entire capital. I do not know the wages bill, but if the company employed 5,000 people at £100 a year each, and 10,000 more at £50 a year each the total wages would be £1,000,000. Such employment would still leave the sleeping partners with nearly three times as much increment as the workpeople!

Company H is a restaurant company, which fortunately gives us a profit and loss account. The balance-sheet is for 1904. The issued capital is £570,000 and in addition there are £300,000 of 4 per cent. debentures. The profit and loss account shows the following figures:

Gross Profit on Trading £474,000 Salaries, wages, _rents_, rates, repairs, horsekeep, maintenance and other expenses 327,000 -------- Profit £147,000 ========

Here we have the statement that included in the £327,000 of total expenses is a certain sum which was paid in salaries and wages. What was it? We do not know, but the company had 90 restaurants at each of which about 10 persons were engaged. That means 900 employees. If they were paid £40 a year each (as a matter of fact they were paid less than that) the wages would amount to £36,000. If, in addition, at headquarters, etc., 100 more people were employed at £100 each, that would mean another £10,000 a year or a total wages bill of £46,000. The net profits were £147,000. Therefore the investors got at least four times as much as those who worked to make the profits! As for the landlord's share, a glance at the figures shows that it must have been very small in proportion to that taken by the sleeping partners. Yet again the business is done upon some of the most valuable sites in the whole country. The business, indeed, is only valuable because of the sites, yet the capitalist and not the landlord takes the lion's share of the unearned increment.

Company I is a manufacturing firm in an important trade. The balance-sheet is for 1903 and the directors complain of "_depression of trade_." The issued capital is £500,000 and there are debentures for £300,000. The net profit made was £70,000 which, after paying debenture interest, sufficed to provide 10 per cent. for the shareholders. If the company "finds work" for 1,000 men at an average of £70 per man, the profits, even in depression, are more than is paid to the workmen who make the profits.

Company J works a great monopoly service under licence from the State.[29] The issued capital amounts to £5,500,000 and in addition there is Debenture Stock amounting to £3,570,000. In 1904 the income amounted to over £2,019,000 and the outlay, including rents, wages, materials, management, etc., to £1,155,000, leaving a net profit of £864,000. Of this the State took £186,000 for royalties, leaving a balance of £678,000 for the share and debenture holders. Thus the sleeping partners took far more than the entire earnings of managers, clerks, operators, and workmen. The number of individuals employed by this concern in 1904 was 30,000. As illustration of a fact already referred to, viz. that a great business needs but a small base, it may be added that the year's rents (building _plus_ land rents), taxes and insurance came to only £77,000. Thus, while the landlords of most valuable sites took something much less than £77,000, the capitalists took £864,000 out of the business done upon the sites.

I have thus described the earning and distribution of a very considerable amount of income by 10 large industrial joint-stock companies. It should be observed that the profits made were won in a period of trade depression and falling wages, when short time and unemployment slew their thousands.

The consideration of such companies is exceedingly instructive for another reason. In them the functions of capital and of business ability are usually divorced. Their shares are, as to a great part, held by mere sleeping partners, while the business ability is supplied by managers or managing directors who, while they may have a certain proprietary interest in the company, rarely own more than a small part of the capital. In the cases quoted, after payment for both labour and skill in management, great and disproportionate sums remain over to reward those who "wait."

The companies quoted cannot be regarded as exceptional cases. The reader has but to glance from day to day at the reports of company meetings published in the daily newspapers to note the steady manufacture of dividends by industrial and other joint-stock concerns. In 1908 the number of joint-stock companies registered in the United Kingdom and believed to be trading was 45,000 and the paid-up capital £2,100,000,000. In 1908-9, the corresponding financial year, 37,937 "public companies" were assessed to income tax and declared their profits at £291,000,000. From this £291,000,000 we have to make certain deductions before we arrive at the profits of ordinary joint-stock companies, for the total includes railway companies and some banks, waterworks, etc., not registered with the Registrar of Joint-stock Companies. Allowing £65,000,000 on this score we have £226,000,000 left as the profit made by joint-stock companies having a nominal capital of £2,100,000,000. Many of these companies have debenture capital but, on the other hand, it is probable that, of the £2,100,000,000, fully one-third is "water"—exaggerated goodwills, promoters' profit, underwriters' commissions, bonus shares and the rest of it. Anyone who is interested in this point should examine the yearly return of companies registered which now shows not only the amount of capital "considered as paid up" but the actual amount subscribed in cash and the payments for underwriting. In a recent return I find such items as this:

Capital considered as paid up £76,683 Minimum Subscription required £7 Amount allotted before beginning business £16,729

and this:

Capital considered as paid up £25,000 Minimum Subscription required £8,000 Commission for underwriting 25 per cent. Amount allotted before commencing business £8,010

That is how a great part of the £2,100,000,000 of registered joint-stock "_paid up_" capital is made.

Setting dummy capital against debentures, we see that, after payment of wages to the workmen and foremen, after the payment of salaries to clerks and officials, after the reward of business ability by the payment of managers or managing directors, after the payment of royalties to patentees where such were payable, after the payment of all rents exacted by the owners of area, there remained a profit of £226,000,000, being over 10 per cent. on the total paid-up capital, watered and unwatered, of all the joint-stock companies registered in the United Kingdom.

We have also to remember that a large amount of unearned increment accrues to many of the sleeping partners who draw the £226,000,000 through the appreciation of their securities on the stock markets. Thus the £1 shares of Company H referred to above were quoted in July 1905 at £6 each, which means that either the present or past holders of the shares gained not only handsome interest, but saw their capital increased sixfold without any exertion upon their part. This creation of a market in the profits of usury has terribly unfortunate results for the employees of joint-stock companies. To the original shareholders who sold at a huge premium the 30 per cent. dividend was 30 per cent. To the new shareholder who pays the price which has arisen from the usurious profits, the 30 per cent. dividend is only 4 per cent. or 5 per cent. He goes to the shareholders' meeting clamouring for his 5 per cent., and eager to resist any suggestion that the wages of those who make his profits should be increased. The very success of the company thus becomes an argument not for the increase of wage but for a reduction of expenses. The managing director knows that he has got to face a body of shareholders who, for the most part, rate a high dividend as a low one. This point was illustrated in my own experience recently in a very striking way. Writing in the "Daily News" I commented upon the small wages paid by a well-known company paying a dividend of 30 per cent. per annum. This roused the indignation of a shareholder in the company who wrote me a letter the chief point of which ran as follow:

"Most of the shareholders have paid £6 or £7 per share, and so get a return of not more than 5 per cent."

So one set of taskmasters passes out of the game with its tremendous gains, and is succeeded by another set. To the latter the poor workpeople are not churning out 30 per cent. but a mere 5 per cent. When the new shareholders enter their premises they see easy work done by overpaid people who make dividends of only 5 per cent. If, at a shareholders' meeting (it has happened at company meetings) a shareholder pleads for higher wages for the employees, he is howled down. They are earning only 5 per cent!

Another illustration is to be found in railway stocks, many of which have (1) been deliberately watered, and (2) risen in price on the market, so that, while railway men are badly paid, the present holders of the stocks are apparently making small profits. Many railway companies have enlarged their ordinary capital by the delightfully simple process of multiplying by two. £100 of original stock has been changed into £100 of "preferred" and £100 of "deferred." This has not been done behind the scenes, but boldly and with the permission of our rich men's parliament. As a consequence it is made to appear that the net receipts of railways are only about 3½ per cent. of their "paid-up" capitals. But the nominal capitals have not been "paid-up"; and even in so far as the original capital is concerned much of it is unreal. Thus the magnitude of the injustice which they suffer is hidden from railway servants. They risk their lives for the public every day and what do they get for it? In 1908, the 27 leading railway companies paid in wages only £30,000,000, or only 25s. per employee per week! These 27 companies own nearly all the railway lines, employ nearly all the railway servants and make nearly all the profits assessed by the Inland Revenue Commissioners. And what do these profits amount to? As I have shown in