The Ultimate Causes Of Unemployment
Warren S. Blauvelt
[Reprinted from Land and Freedom,
January-February, 1932]
The attempt to cope with the business depression and * unemployment
by "publicity" which denies the facts, and advertising to "keep
up courage" and "buy now," has failed. "Buy now"
advertising has not helped the two-days-work-a-week coal miner to
obtain food, clothing or adequate housing, the farmer to buy needed
farm machinery, clothing or fuel, nor the clothing workers, idle or
working but two or three days a week, to buy fuel, food or shelter.
Apparently there are but threej other activities for ameliorating the
existing business depression and resulting unemployment, namely: (1)
Organized relief for the unemployed and their dependents; (2) A vast
increase in public expenditures for permanent improvements; (3)
Organized efforts to limit the production or importation of
commodities and labor in order that an artificial scarcity may
increase prices.
Relief work is necessary, but it does not eliminate the cause of
business depression. Those who are not lacking the necessities of life
may prefer our haphazard "American" relief measures to the
English unemployment insurance. A real objection to both is that an
intense interest in relief tends to divert attention from efforts to
remove the cause of its necessity.
BOND ISSUES COSTLY
The childlike faith in the efficacy of a great increase in public
expenditures for permanent improvements as a means of eliminating
unemployment and dispelling the clouds of business depression is
doomed to disappointment. Such construction must be paid for, either
by taxes levied currently or by bond issues which will increase future
taxes not only by the amount actually spent but by the interest paid
on the borrowed money, thus doubling the final cost to the taxpayer.
The belief that prosperity can be developed by governments going into
debt for new construction is all too common. The temporary appearance
of prosperity while vast expenditures are being made may last long
enough to influence the next election, but the final effect is bound
to be disastrous. This belief is no different from the notion,
recently popular, that permanent prosperity would result from getting
everyone with a prospective income deeply in debt for an automobile, a
radio and new furniture.
The organized effort to increase the prices of commodities and
services has an extraordinary popularity. It appears in many forms.
The Federal Farm Board tried to make agriculture prosperous by
reducing the production of wheat and cotton so that scarcity prices
would prevail. Labor unions without exception have attempted to secure
prosperity for their members by reducing the hours of labor and
increasing wage rates; and in many cases they have limited the output
per man hour. Farmers, horticulturists and manufacturers have
succeeded in increasing the taxes on imports to enhance the prices of
their products, and voters generally have endorsed the most drastic
restriction of immigration in order to make labor scarce. Efforts are
made to reduce the output of oil and natural gas to make oil and gas
scarcer and higher priced. The merger of competing corporations
followed by a reduction in output and higher prices for products is an
approved business activity. Land owners have been notably successful
in establishing and maintaining conditions which make land, needed for
use, artificially scarce and artificially high priced.
LAWFUL AND JUSTIFIED BUT LIMITED IN RESULTS
All these efforts are for the most part respectable, respected and
conducted in conformity with law. One is not justified in finding
fault with manufacturers, farmers and wage earners who, themselves the
victims of existing conditions, attempt by lawful means to make that
which they have to sell artificially scarce and high priced. They are
compelled to do so in our present economic environment as a matter of
self-preservation. Unfortunately, this scheme of promoting business
activity and providing jobs for the unemployed by making commodities
scarce and high priced does not work except to a very limited extent.
John L. Lewis succeeded in maintaining the highest mine wage scale in
history in the unionized bituminous coal fields from 1921 to 1927, but
the earnings of the miner were less than they would have been had the
wage scale been reduced 20 per cent, and the union was nearly wrecked.
The Stevenson plan to limit the shipments of rubber did advance the
price of rubber temporarily, but ultimately brought disaster to the
rubber planters. The Brazilian coffee valorization scheme did yield a
profit for a time to the coffee planters, but it finally failed and
caused a political revolution. And then the Federal Farm Board tried
the same plan to relieve our wheat and cotton growers; this effort
will surely increase our taxes and just as surely fail to relieve the
farmer.
As the attempts to secure prosperity by making commodities scarce and
high priced have always failed, should not some study be given to the
problem of how to reduce the costs of production and distribution and
thus make it possible for part-time workers and all others with lean
purses to buy and consume more and thus increase the effective demand
for commodities? If this were accomplished, more of the unemployed
would be given an opportunity to work, and their increased buying
power would be reflected in a further increase in business activity.
In most of our basic industries costs have been reduced, but
competition has in many cases forced prices below actual costs and
many productive enterprises have been compelled to shut up shop.
Unfortunately this is not a theory but a condition which confronts our
basic industries agriculture, mining, metallurgy, manufacturing and
transportation. Each in its own sphere has done what it could to
reduce costs, and although prices in many cases are below actual
costs, they are still beyond the purchasing power not only of the
unemployed but of the part-time workers, of farmers and of other
victims of existing conditions.
LABOR HOUR THE FAIR UNIT OF VALUE
Undoubtedly, most industries have become more efficient, but have the
final costs of their products to the ultimate consumer been reduced to
such an extent that the prices are lower than they were, say, thirty
years ago? If we were to compare dollar prices we would be using a
variable which would confuse the issue. Let us take what is fairer as
a 'unit of value the labor hour. The Iowa farmer gives more labor in
exchange for a farm wagon at the country store than he did thirty
years ago. The bank clerk in New York City gives more hours of labor
for a ton of anthracite, for a quart of milk and a loaf of bread and
for the monthly rent of his four-room apartment than he did thirty
years ago. Excepting automobiles and other recently invented products,
about the only important commodities or services of which we can now
buy more with the proceeds of an hour's labor are gas and electric
power, and yet the prices of these services are being attacked by
politicians while Congress raises the price of sugar and shoes, of
lemons and lumber, and the Farm Board spends millions in its attempts
to raise the price of cotton and wheat. Evidently the honest and
earnest efforts of primary producers to reduce costs to consumers have
failed. But why?
Our great locomotives now pull trains of more than 5,000 tons of
coal; thirty years ago 2,000 tons was a heavy train. With the new tool
steels, from four to eight times as much metal is cut per hour with
one tool as was cut thirty years ago. Man has solved the problem of
reducing the direct cost of production, but the indirect costs both of
production and distribution have tended to grow faster than the direct
costs have been reduced. To this general statement there are a few
notable exceptions, generally in the newer industries where scientific
discoveries and mechanical inventions are still able to reduce direct
costs more rapidly than our "fundamentally sound economic system"
has been able to increase the indirect costs.
INDIRECT COSTS: LAWFUL AND CRIMINAL
There are three indirect costs, two lawful and respectable, the third
criminal, which tend to grow faster than direct costs can be reduced
by the combined efforts of scientists, inventors, engineers and
business men. They are: taxes on industry and its products and on
earned incomes; ground rent and royalties, or in their capitalized
form, land values; the toll of rackets.
Business men generally have refused to give any serious thought to
the important subject of taxation except for attempts to reduce their
own direct taxes or to have taxes imposed on competing products or
services. The great bulk of our taxes are indirect taxes, "crooked
taxes," finally paid by ultimate consumers after many increments
which add vastly more to the cost of commodities and services than the
amount of the taxes paid. The increase in taxes, direct and indirect,
on our railways is a main cause of the increase in passenger fares and
in freight rates. The increase in the efficiency of transportation
equipment and management has more than offset the increased earnings
of railroad employees. But the pyramiding effect of indirect taxes on
railroad operating and maintenance expenses, combined with the
enormous increase in the direct taxes paid by the carriers, has made
necessary greatly increased freight rates. Our Western farmers are the
victims of their political leaders who were largely responsible for
the great increase in railroad taxation, which is reflected in the
increased freight charges on their products and in their purchased
commodities. Up to the present time, scientific discovery and
invention, together with improved business methods, have made it
possible for the gas and electric utilities to reduce their costs
somewhat more rapidly than the increase in the burden of taxation
levied upon them. But the time is not far distant, if the present
tendency continues, when, like the railroads, they will be compelled
to increase rates to provide revenue to carry the added burden of
direct and indirect taxes.
TAXES CAUSE SCARCITY, INCREASE COSTS
There are but two kinds of property which can be taxed the kind that
gets its value primarily from the labor required to produce it, and
the kind that gets its value from government. A tax on the first kind
of property tends to reduce its quantity and increase its price the
heavier the tax, the higher the price; the higher the tax on building
materials and buildings, the less houses we have and the more they
cost, and the more acute does our housing problem become. The tax on
gasoline and the tax on Jersey cows both increase the cost of the
baby's milk, and yet, very curiously, nearly all our taxes, including
corporation income tax, are of this kind. They make commodities we
need for consumption scarcer and more costly.
Taxes on the other kind of property, the kind that gets its value
from government, have exactly the opposite effect. The higher the tax,
the lower will be the price of each parcel of this class of property,
and the easier it will be to buy it. The most important kind of
property in this class is land, including all natural resources but
excluding any values produced thereon by labor. The higher the tax
paid by the land owner, the less desirable is ownership except for
use. Taxes on land values, unlike taxes on commodities, are paid by
the owner and cannot be added to the rent collected for the use of the
land. For the landlord who rents to the highest bidder is necessarily
limited in the amount that he can charge for the use of his land, by
what the lessee can pay, and the lessee cannot pay more merely because
taxes on the land value are increased. It follows logically that if
taxes on a given piece of land are increased, the net revenue to the
land owner will be reduced thereby and the selling price of the land
will decrease accordingly.
INCREASE LAND-VALUE TAXES
From these two obvious truths the deduction is clear that we can
reduce the cost of commodities by reducing taxes on labor products and
earned incomes and increasing the taxes on land values. It is
difficult to find any ethical justification for levying taxes for the
benefit of the community on property values which the community itself
did not produce. On the other hand, land values are produced not by
the owners but by the community, and the right to own land is derived
from the government. Land values increase with population, with
stability of government and with all public and private improvements.
Is it not a bit inconsistent to make betting on horses a crime while
we encourage the more harmful gambling in land values by allowing such
community-produced values to go to and be retained by lucky or shrewd
speculators?
But disregarding all questions of ethics or of economic justice, the
evidence is convincing that the cost of all commodities would be
reduced by decreasing taxes on labor products and earned incomes, and
increasing taxes on land values.
So long as land values are increasing or are expected to increase
faster than interest charges and taxes, no pressure is brought to bear
upon the owner either to use it himself or to let someone else use it.
As no one can engage in any kind of work or even live without access
to land, is it not obvious that the vested right inherent in our land
system to put a fence around a piece of land and refuse to use it, or
to let any one else use it, without paying yearly to the State, which
grants this right, the annual value thereof, is an effective means of
making land for use artificially scarce and artificially high priced?
But so long as we maintain conditions under which it is increasingly
profitable to keep some land out of use and other land only partially
used, will not conditions tend to become worse?
INFLATED LAND VALUES RETARD BUSINESS RECOVERY
Commodity values and security prices have been fairly well deflated,
but land values, especially in our cities, resist deflation, and these
inflated land values are unquestionably a powerful retarding influence
to any healthy business recovery. It is not necessary to levy a heavy
tax on a factory, an office building, a stock of merchandise or any
other kind of property which is the product of human labor, to compel
the owner to use it in the service of the public. The owner of a
factory loses money unless he produces goods which people desire, at a
cost at which they will purchase. The owner of an office building
loses money unless he provides satisfactory accommodations at a price
tenants are willing to pay. For a merchant, losses are inevitable
unless he offers such merchandise as his customers desire at a price
they will pay. An increased tax on land values would either compel
owners to use their land or else reduce the price to someone else who
would use it. As land cannot be used without employing labor, the
effective way to provide jobs for the jobless would be to increase the
tax on land values while reducing the tax on all labor products.
TOLL OF THE RACKETS
The third unnecessary burden on business which greatly increases the
cost of commodities and services the toll of the rackets is attracting
much attention. A racket may be defined as an illegal method of
collecting tolls from industry and commerce. From time immemorial
illegal commerce has paid toll to racketeers, and the racket which
exacts tolls from legitimate commerce is not altogether new, but it is
better organized than ever before. The methods of mass production, of
business organization, of well directed publicity and of a competent
legal staff are now being employed with marked success, and in some
cases reformers who are so dominated by their emotions that their
minds have become atrophied, combine unknowingly with racketeers to
support the same legislation and to elect the same candidates to
public office.
There are two reasons for the development of rackets. Many who are
denied the opportunity to engage in useful work can find employment at
good. wages in such activities. Doubtless more men are given steady
work at living wages by the numerous organized rackets than by
national, State and local unemployment committees. The second reason
for rackets is that our system of taxation provides a perfectly legal
and respectable method of collecting tolls from commerce and industry
without performing any service, one which has as inevitable
by-products idle land and "a reserve army of labor" men
unable to find work varying from about one million during periods of
business activity to possibly six millions in the present period of
business depression. It is easy for one who is out of work and sees
wealth being absorbed without service by lawful methods, to try to "get
his" by illegal means. Is it reasonable to believe that more
policemen, sterner judges and more severe punishment will eliminate
rackets unless we first eliminate our lawful, respectable method of
getting something for nothing, which denies to many the right to work
and to enjoy the fruits of their labor?
WOULD MAKE MORE JOBS
A reduction of taxes levied on industry, its products, and incomes
derived therefrom, combined with an increase in the taxes on land
values, would make more jobs available and would reduce the incomes
received by land owners for which no service is performed, thus
tending to eliminate the two most important causes of racketeering.
There are two classes of causes of business depression and
involuntary unemployment proximate causes which are many and which
differ from time to time and from place to place, and ultimate causes
which are constantly functioning to close the door of opportunity to
workers, to reduce the rewards and increase the hazards in the
performance of the service functions of production and distribution.
Of these two kinds of causes, the former, which is relatively
unimportant, has practically monopolized the attention of the students
of the problem and of economists and politicians who are actively
interested in ameliorating conditions. The methods actually employed
and those commonly suggested, both to relieve the suffering caused by
unemployment and to combat its contemporary and proximate causes,
generally ignore the ultimate causes. Nay, more, they commonly tend to
increase the hazards and curtail the natural rewards for the
performance of the service functions, while reducing the risks and
increasing the rewards for the successful performance of the parasitic
function of absorbing community produced wealth.
RECAPITULATION
To recapitulate:
1. Relief is inadequate and, even with the most intelligent and
sympathetic administration, tends to detract from the self-reliance
and self-respect of its recipients.
2. Heavy public expenditures to be paid for by taxes on productive
enterprises and its products will only result in a temporary
appearance of prosperity to be followed by a still worse depression.
3. Restricting production and artificially maintaining prices, while
at times highly profitable to the small minority who have the legal
privilege of exploiting the natural resources and consequently the
labor of the country, are total failures as methods of providing the
jobless with opportunities to engage in useful industry.
4. High taxes on labor products and incomes, high land values as
reflected in increased ground rents and royalties, and the heavy toll
of the rackets have increased the cost of commodities and services and
have reduced the opportunities for honest, productive work.
5. The above indirect costs would be reduced by lowering all taxes on
labor products and service incomes and increasing the taxes on land
values.
6. A reduction in the cost of products would increase demand and thus
stimulate production and distribution, and so provide jobs for the
unemployed.
WHY NOT TRY THE ECONOMIC METHOD?
The methods of organized charity and of political interference with
the performance of the service functions having failed to solve the
unemployment problem, is it not advisable to consider trying the
economic method? Relieve industry and its products from taxes and tax
the idle land into use, and involuntary unemployment on a large scale
will tend to become as rare as yellow fever. The mosquito which
infects the body politic with the social disease of involuntary
unemployment is our system of taxing industry, thrift and enterprise,
thus confiscating for community use a substantial and steadily
increasing percentage of the natural rewards for the performance of
the service functions, while permitting land owners to collect and
retain the community produced wealth of ground rents and royalties,
the total of which is constantly increasing, and in exchange for
which, land owners, as such, perform no service.
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