economic and juridical systems of modern societies, are presumably the effects of certain characteristics of these systems, and to go on to a detailed examination of these systems from this point of view.

Again, it does not seem very useful, or even generally true, to say, as Professor Nicholson does,' that freedom of contract is a cause of inequality. Once more one asks, what is the alternative, under which inequality would be smaller? Historically, restriction of freedom of contract has frequently kept down wages and probably increased inequality, and Professor Nicholson himself remarks that, under a slave economy, inequalities of property, including slaves, were still more startling than those which are found under substantial freedom of contract. In civilised countries to-day it would be easy to suggest various restrictions on freedom of contract, some of which would be likely to increase and others to diminish the inequality of incomes.

"

§4. The classification which best combines brevity with accuracy is that of Professor Taussig, who reduces the causes of inequality to two, "inborn differences in gifts, and the maintenance of acquired advantages through environment and through the inheritance of property."2 But to make this a complete account of the matter, we need to understand the word "environment in a very wide sense, so as to include all causes of unequal opportunities to obtain income, except the inheritance of property. For our present purpose, it will be better to take a more extended classification. We have seen that income is dived from four main sources, work, property, civil rts, and private gifts. The relative size of individual incomes, that is to say the extent of inequality, depends therefore upon three factors,

1 Principles of Political Economy, I., pp. 221 ff. Principles of Economics, II., p. 246.

• See Part III., Chapter III. above.

3

first, the relative size of the total incomes from the four main sources just mentioned; second, the distribution among different individuals of the total income from each of these four sources; third, the extent to which particular individuals obtain income from more than one of these four sources. The first of these three factors has been discussed at some length, and the third has been briefly touched upon, in Part III. of this book. The second will be discussed, in some of its aspects, in the following chapters.

R

CHAPTER II

INEQUALITY OF INCOMES FROM CIVIL RIGHTS AND
PRIVATE GIFTS.

§1. Income from civil rights may, in the main, be regarded as a part of what is sometimes called Social Provision. The old Poor Law was in this country the historic germ of Social Provision, and its remains are to be classed under this heading still, though these have become relatively unimportant compared with other modern developments, which embody quite different principles.

Modern governments make Social Provision in various ways, many of which resolve themselves into the laying down of certain minimum standards of economic attainment, below which no citizen is legally allowed to fall.1 Six main types of Social Provision, as found in this country, may be briefly distinguished. The first consists of the legal regulation of contracts of employment in matters unconnected with the payment for work done. Regulations under the Factory Acts are an example of this type. The second type consists of the legal regulation of contracts of employment as regards the payment for work done. Thus the manner of payment may be regulated, as by the Truck Act, or minimum rates of payment may be determined and legally enforced through such machinery as that of the Trade Boards Act. The

1 For a defence of the policy of the National Minimum in the light of first principles, see Pigou, Wealth and Welfare, pp. 393-8, and compare Webb, Socialism and the National Minimum.

third type consists of the legal addition to contracts of employment of an obligation on the employer to make certain payments for the benefit of the worker in certain circumstances, which payments, however, are not for work actually done. Examples of this type are the employers' liability under the Workmen's Compensation and Employers' Liability Acts, and their contributions under the Health and Unemployment Insurance Acts. The fourth type resembles the third, except that the obligation to make a payment rests upon the worker and not upon the employer. An example of this type is the workers' contribution under the Health and Unemployment Insurance Acts. The fifth type consists of payments made from public funds, in connection with contracts of employment. An example of this type is the State contribution under the Insurance Acts. The sixth type consists of payments from public funds, without reference to contracts of employment. Examples of this type are Old Age Pensions, War Pensions, expenditure on education and, though governed by different principles, Poor Relief.

Benefits received by individuals under the fifth and sixth types are obviously income from civil rights. Benefits under the first and second obviously are not. Benefits under the first are not income at all. Benefits under the second are income from work. Benefits under the third and fourth types are on the border line between income from work and income from civil rights, but may here be conveniently included in the latter. A few simple changes in modern legislation would make large readjustments as between the third, fourth, fifth and sixth types. For example, a provision under which workmen's compensation was payable, not by employers as at present, but out of the public funds, or a provision under which the employers' contribution to health insurance was abolished and a corresponding contribution from

public funds substituted for it, would increase the importance of the fifth type relatively to the third. A provision under which a contribution from public funds was substituted for the workers' contribution to health insurance would increase the importance of the fifth type relatively to that of the fourth. Or again, a provision under which the medical benefits of the health insurance scheme were given, either free or below cost price, by means of a subsidy from public funds and without reference to any contract of employment, would be an extension of the sixth type at the expense of the third, fourth, and fifth.

§2. It would appear that the intention in the mind of the modern legislator is that income from civil rights should be distributed in rough accordance with need. The intention has been to call into being a body of new law to begin to redress the balance of the old, in which the scales were so heavily weighted in favour of inequality.1 Most income-bearing civil rights make greater additions to the incomes of the poor than of the rich, and thus tend to reduce inequality. The extent to which inequality will be reduced depends also, of course, on how the funds are raised, out of which the income from civil rights is paid. The greater the extent to which these funds are raised by taxation of the rich, the larger, other things being equal, will be the effective transfer from rich to poor.

Looked at from a slightly different angle, the aim of the modern legislator has been to diminish the insecurity of working class life, and to modify the situation, in which the majority of the population were dependent merely on their wages, supplemented only by such small

1 Such modern legislation is an example of the fact that political equality is apt to beget a movement towards economic equality. Compare Part I., Chapter I., above, and also Matthew Arnold's prescient essay on Democracy, republished in his Mixed Essays.