“All men,” wrote Thomas Jefferson in framing the Declaration of Independence, “have an inalienable right to life, liberty and the pursuit of happiness.”  The words are more than a felicitous phrase.  They express even more than the creed of a nation.  They embody in themselves the uppermost thought of the era that was dawning when they were written.  They stand for the same view of society which, in that very year of 1776, Adam Smith put before the world in his immortal “Wealth of Nations” as the “System of Natural Liberty.”  In this system mankind placed its hopes for over half a century and under it the industrial civilization of the age of machinery rose to the plenitude of its power.

In the preceding chapter an examination has been made of the purely mechanical side of the era of machine production.  It has been shown that the age of machinery has been in a certain sense one of triumph, of the triumphant conquest of nature, but in another sense one of perplexing failure.  The new forces controlled by mankind have been powerless as yet to remove want and destitution, hard work and social discontent.  In the midst of accumulated wealth social justice seems as far away as ever.

It remains now to discuss the intellectual development of the modern age of machinery and the way in which it has moulded the thoughts and the outlook of mankind.

Few men think for themselves.  The thoughts of most of us are little more than imitations and adaptations of the ideas of stronger minds.  The influence of environment conditions, if it does not control, the mind of man.  So it comes about that every age or generation has its dominant and uppermost thoughts, its peculiar way of looking at things and its peculiar basis of opinion on which its collective action and its social regulations rest.  All this is largely unconscious.  The average citizen of three generations ago was probably not aware that he was an extreme individualist.  The average citizen of to-day is not conscious of the fact that he has ceased to be one.  The man of three generations ago had certain ideas which he held to be axiomatic, such as that his house was his castle, and that property was property and that what was his was his.  But these were to him things so obvious that he could not conceive any reasonable person doubting them.  So, too, with the man of to-day.  He has come to believe in such things as old age pensions and national insurance.  He submits to bachelor taxes and he pays for the education of other people’s children; he speculates much on the limits of inheritance, and he even meditates profound alterations in the right of property in land.  His house is no longer his castle.  He has taken down its fences, and “boulevarded” its grounds till it merges into those of his neighbors.  Indeed he probably does not live in a house at all, but in a mere “apartment” or subdivision of a house which he shares with a multiplicity of people.  Nor does he any longer draw water from his own well or go to bed by the light of his own candle:  for such services as these his life is so mixed up with “franchises” and “public utilities” and other things unheard of by his own great-grandfather, that it is hopelessly intertangled with that of his fellow citizens.  In fine, there is little left but his own conscience into which he can withdraw.

Such a man is well aware that times have changed since his great-grandfather’s day.  But he is not aware of the profound extent to which his own opinions have been affected by the changing times.  He is no longer an individualist.  He has become by brute force of circumstances a sort of collectivist, puzzled only as to how much of a collectivist to be.

Individualism of the extreme type is, therefore, long since out of date.  To attack it is merely to kick a dead dog.  But the essential problem of to-day is to know how far we are to depart from its principles.  There are those who tell us ­and they number many millions ­that we must abandon them entirely.  Industrial society, they say, must be reorganized from top to bottom; private industry must cease.  All must work for the state; only in a socialist commonwealth can social justice be found.  There are others, of whom the present writer is one, who see in such a programme nothing but disaster:  yet who consider that the individualist principle of “every man for himself” while it makes for national wealth and accumulated power, favors overmuch the few at the expense of the many, puts an over-great premium upon capacity, assigns too harsh a punishment for easy indolence, and, what is worse, exposes the individual human being too cruelly to the mere accidents of birth and fortune.  Under such a system, in short, to those who have is given and from those who have not is taken away even that which they have.  There are others again who still view individualism just as the vast majority of our great-grandfathers viewed it, as a system hard but just:  as awarding to every man the fruit of his own labor and the punishment of his own idleness, and as visiting, in accordance with the stern but necessary ordination of our existence, the sins of the father upon the child.

The proper starting point, then, for all discussion of the social problem is the consideration of the individualist theory of industrial society.  This grew up, as all the world knows, along with the era of machinery itself.  It had its counterpart on the political side in the rise of representative democratic government.  Machinery, industrial liberty, political democracy ­these three things represent the basis of the progress of the nineteenth century.

The chief exposition of the system is found in the work of the classical economists ­Adam Smith and his followers of half a century ­who created the modern science of political economy.  Beginning as controversialists anxious to overset a particular system of trade regulation, they ended by becoming the exponents of a new social order.  Modified and amended as their system is in its practical application, it still largely conditions our outlook to-day.  It is to this system that we must turn.

The general outline of the classical theory of political economy is so clear and so simple that it can be presented within the briefest compass.  It began with certain postulates, or assumptions, to a great extent unconscious, of the conditions to which it applied.  It assumed the existence of the state and of contract.  It took for granted the existence of individual property, in consumption goods, in capital goods, and, with a certain hesitation, in land.  The last assumption was not perhaps without misgivings:  Adam Smith was disposed to look askance at landlords as men who gathered where they had not sown.  John Stuart Mill, as is well known, was more and more inclined, with advancing reflection, to question the sanctity of landed property as the basis of social institutions.  But for the most part property, contract and the coercive state were fundamental assumptions with the classicists.

With this there went, on the psychological side, the further assumption of a general selfishness or self-seeking as the principal motive of the individual in the economic sphere.  Oddly enough this assumption ­the most warrantable of the lot ­was the earliest to fall under disrepute.  The plain assertion that every man looks out for himself (or at best for himself and his immediate family) touches the tender conscience of humanity.  It is an unpalatable truth.  None the less it is the most nearly true of all the broad generalizations that can be attempted in regard to mankind.

The essential problem then of the classicists was to ask what would happen if an industrial community, possessed of the modern control over machinery and power, were allowed to follow the promptings of “enlightened selfishness” in an environment based upon free contract and the right of property in land and goods.  The answer was of the most cheering description.  The result would be a progressive amelioration of society, increasing in proportion to the completeness with which the fundamental principles involved were allowed to act, and tending ultimately towards something like a social millennium or perfection of human society.  One easily recalls the almost reverent attitude of Adam Smith towards this system of industrial liberty which he exalted into a kind of natural theology:  and the way in which Mill, a deist but not a Christian, was able to fit the whole apparatus of individual liberty into its place in an ordered universe.  The world “runs of itself,” said the economist.  We have only to leave it alone.  And the maxim of laissez faire became the last word of social wisdom.

The argument of the classicists ran thus.  If there is everywhere complete economic freedom, then there will ensue in consequence a regime of social justice.  If every man is allowed to buy and sell goods, labor and property, just as suits his own interest, then the prices and wages that result are either in the exact measure of social justice or, at least, are perpetually moving towards it.  The price of any commodity at any moment is, it is true, a “market price,” the resultant of the demand and the supply; but behind this operates continually the inexorable law of the cost of production.  Sooner or later every price must represent the actual cost of producing the commodity concerned, or, at least, must oscillate now above and now below that point which it is always endeavoring to meet.  For if temporary circumstances force the price well above the cost of producing the article in question, then the large profits to be made induce a greater and greater production.  The increased volume of the supply thus produced inevitably forces down the price till it sinks to the point of cost.  If circumstances (such, for example, as miscalculation and an over-great supply) depress the price below the point of cost, then the discouragement of further production presently shortens the supply and brings the price up again.  Price is thus like an oscillating pendulum seeking its point of rest, or like the waves of the sea rising and falling about its level.  By this same mechanism the quantity and direction of production, argued the economists, respond automatically to the needs of humanity, or, at least, to the “effective demand,” which the classicist mistook for the same thing.  Just as much wheat or bricks or diamonds would be produced as the world called for; to produce too much of any one thing was to violate a natural law; the falling price and the resulting temporary loss sternly rebuked the producer.

In the same way the technical form and mechanism of production were presumed to respond to an automatic stimulus.  Inventions and improved processes met their own reward.  Labor, so it was argued, was perpetually being saved by the constant introduction of new uses of machinery.

By a parity of reasoning, the shares received by all the participants and claimants in the general process of production were seen to be regulated in accordance with natural law.  Interest on capital was treated merely as a particular case under the general theory of price.  It was the purchase price needed to call forth the “saving” (a form, so to speak, of production) which brought the capital into the market.  The “profits” of the employer represented the necessary price paid by society for his services, just enough and not more than enough to keep him and his fellows in operative activity, and always tending under the happy operation of competition to fall to the minimum consistent with social progress.

Rent, the share of the land-owner, offered to the classicist a rather peculiar case.  There was here a physical basis of surplus over cost.  But, granted the operation of the factors and forces concerned, rent emerged as a differential payment to the fortunate owner of the soil.  It did not in any way affect prices or wages, which were rendered neither greater nor less thereby.  The full implication of the rent doctrine and its relation to social justice remained obscured to the eye of the classical economist; the fixed conviction that what a man owns is his own created a mist through which the light could not pass.

Wages, finally, were but a further case of value.  There was a demand for labor, represented by the capital waiting to remunerate it, and a supply of labor represented by the existing and increasing working class.  Hence wages, like all other shares and factors, corresponded, so it was argued, to social justice.  Whether wages were high or low, whether hours were long or short, at least the laborer like everybody else “got what was coming to him.”  All possibility of a general increase of wages depended on the relation of available capital to the numbers of the working men.

Thus the system as applied to society at large could be summed up in the consoling doctrine that every man got what he was worth, and was worth what he got; that industry and energy brought their own reward; that national wealth and individual welfare were one and the same; that all that was needed for social progress was hard work, more machinery, more saving of labor and a prudent limitation of the numbers of the population.

The application of such a system to legislation and public policy was obvious.  It carried with it the principle of laissez-faire.  The doctrine of international free trade, albeit the most conspicuous of its applications, was but one case under the general law.  It taught that the mere organization of labor was powerless to raise wages; that strikes were of no avail, or could at best put a shilling into the pocket of one artisan by taking it out of that of another; that wages and prices could not be regulated by law; that poverty was to a large extent a biological phenomenon representing the fierce struggle of germinating life against the environment that throttles part of it.  The poor were like the fringe of grass that fades or dies where it meets the sand of the desert.  There could be no social remedy for poverty except the almost impossible remedy of the limitation of life itself.  Failing this the economist could wash his hands of the poor.

These are the days of relative judgments and the classical economy, like all else, must be viewed in the light of time and circumstance.  With all its fallacies, or rather its shortcomings, it served a magnificent purpose.  It opened a road never before trodden from social slavery towards social freedom, from the mediaeval autocratic regime of fixed caste and hereditary status towards a regime of equal social justice.  In this sense the classical economy was but the fruition, or rather represented the final consciousness of a process that had been going on for centuries, since the breakdown of feudalism and the emancipation of the serf.  True, the goal has not been reached.  The vision of the universal happiness seen by the economists has proved a mirage.  The end of the road is not in sight.  But it cannot be doubted that in the long pilgrimage of mankind towards social betterment the economists guided us in the right turning.  If we turn again in a new direction, it will at any rate not be in the direction of a return to autocratic mediaevalism.

But when all is said in favor of its historic usefulness, the failures and the fallacies of natural liberty have now become so manifest that the system is destined in the coming era to be revised from top to bottom.  It is to these failures and fallacies that attention will be drawn in the next chapter.