The Cost Principle (Index (Dec. 11, 1873))

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Josiah Warren

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Josiah Warren, "The Cost Principle." The Index, 4, 207 (Dec. 11, 1873), pp. 504-5.


Round again to anarchy! The next phase in all political systems is despotism in government—the "one man power."

Is there nothing else in store for our wretched race but these two great sources of confusion and misery; or are there some unexplored regions of thought from which we can derive some hope of repose for our great bedlam miscalled "society" Let us see. The subject of money is now up for discussion, more prominently than any other. Let us see if we understand its true function.

Although one may travel many miles in some countries, and "pay his way" with needles, silk thread, or wampum, we cannot carry flour, corn, meat, etc. about us to exchange for what we need, and therefore we carry little bits of metal, or pictured papers promising these bits of metal, called dollars and cents. There being no accepted principle for the regulation of prices, a contest arises in every transaction between exchanging parties,—the one aiming to get as much as possible, and the other to give as little as possible of these bits of metal for the commodity exchanged and this debasing scramble has become the most absorbing business of life.

Now (as "nothing is ever settled till it is settled right") the problem before us is, what constitutes justice; or, what would bring about adjustment? How many of these dollars should I, in justice, give for a barrel of flour? Should I give five, ten, three, twenty, or a hundred?

The flour dealers tell us that the price depends on the "demand." They have no other answer to give; and it is true to the spirit of trade throughout the world. They proceed to buy up flour to create a scarcity, and then set their prices according to the "demand" or degree of want or distress thus created; and the more distress they create the greater are their speculations.

While this practice may give the speculator in a few hours as much as a useful man could earn in his whole life, it entirely overlooks and disregards justice to the producers of the flour. So completely is this justice left out of sight, it is not probable that there is a man in Boston who has the least idea of the average amount of labor in a barrel of flour in any part of the world.

Our question recurs: what should be the price of the barrel of flour?

As there is no ascertainable relationship between dollars and the labor in the flour, the question never can be answered in dollars; the little girl who said she "loved her father fifty cents," illustrated the futility of any attempt to pay properly for labor in any common money.

Again: what should be the price of a barrel of flour? Some have replied that an equal number of hours of labor as had been bestowed on the flour

This might hold good with some kinds of labor. But hour for hour would not apply as a rule, because some pursuits are so much more disagreeable than others: we might prefer to work three hours in one rather than one hour in another, and we cannot reach adjustment as long as there is much preference for some pursuits rather than for others. But if we had just prices according to the pleasures and pains involved in each pursuit, giving to the most disagreeable the highest compensation, and to the most pleasurable the least, we should avert all contests arising out of preferences for positions. Each one would be filled according to the demand.

It will at once be seen that this highest reward to the most repugnant labor is exactly opposite to the prevailing customs in all countries; while it is, at the same time, in perfect harmony with the strongest instincts of every worker, and with common sense. In the most compact phrase, it is the SACRIFICES we make for each other that should measure our compensation in order to reach adjustment. The barrel of flour, then would be properly paid for with an amount of labor or service which cost sacrifices equal to those involved in the production and delivery of it. To get this principle into practical working order, we take some staple article, such as wheat, corn, or iron, and ascertain by investigation the time required on an average for the production of a certain quantity in a certain locality. Corn was selected in Ohio and Indiana as this unit of measurement, and it was found to cost an hour's labor to raise twenty pounds. The corn was used, instead of dollars and cents, for the measurement of prices in the different pursuits.

The easiest and pleasantest labor was priced, perhaps, at five pounds per hour, and the more repugnant (or that attended with contingent losses) at twenty-five, thirty, or fifty pounds, or whatever each one might decide on for his own work.

This makes it necessary to find out the amount of labor in the different products; but these estimates once obtained may remain unchanged for a long time, during which time all speculations on food, clothing, fuel, etc., thus estimated, would be knocked in the head. If a barrel of flour is found to cost thirty-five hours' labor, then thirty-five hours of equivalent labor would be its price from year to year.

"But," asks our critic "what shall prevent the holder of the flour from demanding a hundred days' labor for it?" This question introduces our "equitable money," which is simply a positive promise on INDIVIDUAL RESPONSIBILITY to deliver a barrel of flour. It would be ridiculous to say, "Flour has gone up." The note calls for a barrel of flour, and a barrel of flour must be forthcoming.

When the natural effects of this equitable limit to prices begin to be appreciated, instead of any desire to exceed these limits, the temptations, especially to men and women of high culture and moral aspirations, will be all the other way and if one flour dealer in a city should religiously adhere to this equitable limit of price, it would be impossible for any other in that city to raise the price above that limit. The same may be said of any other department of business. One single person in a neighborhood, who would buy and sell land for an equitable compensation for his time and trouble, would put an end to the ever-vexed question of land tenures, by cutting up by the roots all monopoly in that neighborhood for the sake of selling it at a profit, and would open the way to homes for the homeless, and bread to the starving.

An unchangeable limit to the prices of our supplies would be the commencement of that "SECURITY OF CONDITION" which is the professed object of all governments, and the chief excuse for their existence.

This equitable limit of prices, abolishing all profits over and above compensation, would abolish the sharp and destructive competition between individuals and nations,—would abolish the principal cause of modern wars,—would put an end to excessive importations to the ruin of our own productive business; but at the same time it would open the way to legitimate commerce with all parts of the world where exchanges would be mutually beneficial.

Trade merely for the sake of profit would be abolished; and would be limited to the simple equitable exchange of commodities, for the same reason that the farmer and the carpenter exchange with each other—not for the profit derived from price, but for the benefits derived from each others' products, arising from the division of labor.

If the needle manufacturers of Birmingham can supply all the world with needles, and are willing to limit their prices by the costs incurred then it would immediately become the interest of ail the world to cooperate with them in affording every practical facility and improvement in the processes of manufacture that would tend to reduce the costs. But, if profit-making intervenes and buys these needles to peddle out at the highest price that can be extorted from the "demand," then there is no such motive for coöperating help—no bond of mutual interest between the parties; but instead of it an unnecessary multiplication of manufactories and a mutual strife between different countries to under-work and under-sell each other, grinding their workmen down to the starvation point. Then come the tariff systems for the "protection of labor," and then a war against tariffs. (The first premonitory symptom of war between the South and the North was heard in 1832 in South Carolina, in opposition to the tariff insisted on by the North.) It is the buying cheap and selling dear that grinds the workers and small manufacturers to powder. With simple exchanges on the cost principle, every one bearing his own burdens, two or three hours' employment per day would abundantly furnish a handsome living and security of condition, and we could afford to be almost indifferent to the mere question of cheapness.

Perhaps it would be well to elaborate this cost principle more fully.

The words Cost, Value, Worth, and Price, are generally used indiscriminately, but here it is necessary to discriminate very carefully, to avoid infinite confusion. The word Value is here used to express the benefit or satisfaction derived by the receiver from the thing received: as, for instance, a loaf of bread may be of great value to one dying of hunger, but it might not be of much value to even the same person if he was not hungry or had an abundance.

The word Worth is synonymous with Value. Price is the thing we pay for the thing we receive.

The word Cost, like every other word, "changes its meaning as often as it refers to different things."

We say, that house cost five thousand dollars,—the word cost referring only to the money paid for the house; but, speaking of the costs of a war, the money expended is but a very small item of its costs. The sacrifices made by parents, brothers, and sisters, when families are ruptured to make up the army, the abandonment of the useful industries, the enslavement and degradation of men under tyrannical military discipline, their sufferings from exposures to heat, cold, and wet, the pains of the wounded and dying, the destruction of homes, the anguish of widows, the destitution of orphans, and the lasting enmities between the contending parties, are some of the costs of a war, as that word is used when speaking of the cost principle. It is intended to express whatever is painful or repugnant in what we do or suffer—the sacrifices we may make in the services we may perform for each other. The word cost is used in this comprehensive sense, and is preferred because it is short and convenient, and not altogether new in its application.

It will be perceived that this cost-limit of price is in direct conflict with the prevailing practice of getting all we can, according to the "demand." A barrel of flour, or anything else, must have a value to the purchaser, or there is no motive to buy it, but to make this value, or the necessities of the buyer, the measure of price subjects the necessitous to enslavement for food, clothing, and shelter, or drives them to crime, suicide, or starvation, and fills the world with antagonisms and confusion. Let costs govern prices, and ruinous fluctuation in prices is at an end. Let our money be notes promising positive, definite quantities of definitely specified articles or services. Let them promise specified quantities of corn, iron, wheat, flour, coal, carpenter-work, and all kinds of services. The positive promise for certain quantities cuts off all power of the seller to take advantage of the necessities of the buyer, and puts an end to this kind of cannibalism, which will be found to be the subtle, unseen virus that has poisoned all our business intercourse. Take up any business newspaper, and there will be found an abundance of illustrations of this cannibalism. Wherever prices are touched upon, they are fixed with reference, not to any idea of justice, but to create the most "demand," and make the most out of it, and the more effectually buyers are "cornered" the more they can be made to pay. This exhibits human nature in a hideous light and prompts us to apologize for it by the fact that it knows nothing but what it learns. All the financiers and political economists have admitted into their premises that prices may properly be measured by "the demand," and all their after-reasonings are vitiated by this fatal, unexamined error; which has been admitted and followed without question as the fiat of authority. It is with this hideous dogma that the cost principle makes direct issue.