I am going to end with a rather difficult subject on which I hesitated whether I should put it into this book or no. If you find it too difficult leave it out; but if you find as you read that you can understand it it is worth going into, because it is quite new (you will not find it in any other book), and it is very useful in helping one to understand certain difficult problems which have arisen in our modern society and which have become a danger to-day. This subject is what I call “Economic Imaginaries.”

An imaginary is a term taken from mathematics, and means a value which appears on paper but has no real existence. It would be too long and much too puzzling to explain what imaginaries in mathematics are, but I can give you a very simple example of what they are in Economics. They mean economic values or lumps of wealth which appear on paper when you are making calculations, so that one would think the wealth was really there, but which when you go closely into their nature you find do not really exist.

The first example I will give you is that of a man who, having a large income, gives an allowance to his son living somewhere abroad. Supposing a man in England has £10,000 a year, and he has put his son into business in Paris, but because the young man has not yet learned his business, and is still being helped from home, he allows that son £1,000 a year to spend.

When the Income Tax people go round finding out what everybody has they put down the rich man in England, quite rightly, as having £10,000 a year, and when the value of all incomes in England is assessed, i.e., when a table is drawn up showing what the total income of all Englishmen is, this man appears, quite properly, as having £10,000 a year. But when the people in France make a similar assessment, to find out what the incomes are of all the people living in France, the rich man’s son in Paris appears as having £1,000 a year. So when the assessments of England and France are added together and some Government economist is calculating what the total income of the citizens of both countries may be, that £1,000 a year appears twice. One of these appearances is an economic imaginary. In other words, by the method of calculation used, £1,000 every year appears on the total assessment of England and also of France, making £2,000 of £1,000. The extra £1,000, though appearing on paper, does not really exist at all: it is an “Economic Imaginary.”

This is the simplest case of an economic imaginary. It is the case overlap, or counting of the same money twice, and we may put down this case in general terms by saying: “Every unchecked overlap creates an economic imaginary to the extent of that unchecked overlap.”

It looks so simple that one might say, “Well, surely everybody would notice that!” But it is very much the other way—even in this simple case. The more complicated society becomes, the more payments there are back and forth, allowances and pensions and all sorts of arrangements which grow up with increased travel and means of communication and, in general, with the development of society, the more these overlaps come into being and remain unchecked, that is, uncorrected, the greater number there are in which people are not aware that there is an overlap, or if it is an overlap do not remember to mention it, or if they do mention it are not believed. In general the more society increases in complexity the more this kind of economic imaginary by mere overlap increases in proportion to the total real wealth, and the more the total “assessment” of the community is exaggerated.

I will give you one instance, to prove this, which is very striking and which happened in my own experience. A man I knew gave in his income tax returns a few years ago. He had a secretary at home to whom he paid a fairly large salary, and he also used a secretary in town. Their salaries came out of money which he had earned in business but appeared in his taxable general income, for he was not allowed to take it off as an expense. Meanwhile, both the secretary in the country and the secretary in town were paying tax on their salaries, though they came out of a total income which had already paid taxes, and anyone making an assessment of the total income of England would certainly have written down from the official books: “Mr. Blank, so much a year; his secretary A—, so much a year; his secretary B—, so much a year,” and added up the total. Yet it is clear that the money put down to A and B was imaginary.

I cannot tell you the thousands of ways in which this simple case of overlapping goes on in modern England, for it would be too long to explain, and I have only given you very simple instances, but you may be certain that the economic imaginaries of this kind form at least a quarter of the supposed income of the country.

If there were no other form of imaginaries than this it would be very simple to understand them, and perhaps allow for them in making an estimate of total wealth. Unfortunately, there are any number of different forms much more difficult to seize and cropping up like mushrooms everywhere more and more in a complicated and active society.

For instance: you have (2) the economic imaginary due to luxurious expenditure.

All over the world where you have rich people spending money foolishly they are asked, for things that they buy, prices altogether out of keeping with the real value of the things. If you go into one of the big hotels in London or Paris and have a dinner the economic values you consume are anything from a quarter to a tenth of the sum you are asked to pay. Thus people who buy a bottle of champagne in this sort of place pay from a pound to thirty shillings. The economic values contained in a bottle of champagne, that is the economic values which are built up by the labour of all sorts which has been expended in producing it, come to about two shillings and sixpence. So when people pay from a pound to thirty shillings for a bottle of champagne they are paying from eight to twelve times the real economic values which are destroyed in consumption. There is an extra margin of anything from seventeen shillings and sixpence to twenty-seven shillings and sixpence, which is an economic imaginary in that one case alone. And remember that this economic imaginary goes the rounds. It appears in the profits of the hotel-keeper, which are assessed in the total national income for taxation. It appears in the rent for his hotel, since a man will pay much more rent for a house in which he can get people to pay these sums than for a humbler hotel of the same size and of the same true economic value in bricks and mortar. It appears in the rates which the hotel pays to the local authorities, and which in their turn appear in the income of humble officials living in the suburbs. That economic imaginary created by the silly person who is willing to pay from a pound to thirty shillings for a thing worth two shillings and sixpence appears over and over again in the various assessments of the country.

Here is another case (3): economic imaginaries due to inequality of income.

Supposing you have a thousand families with £1,000 a year each; that is, a total income among them of £1,000,000 a year. Supposing you put up for competition among those families a very beautiful picture which everybody would like to have; painted, say, by Van Dyck. None of these people with £1,000 a year each could afford to give more than a certain sum for the picture, and probably, when they had competed for it, it would fetch no more than £100. An official estimating that community would say that it had £1,000,000 a year income, such and such values in houses, etc., and that there was a picture present worth £100, and all that would go down in his estimates or “Assessment.”

Now supposing all but two of these thousand families to be impoverished by having to pay rents and interest to these two men. Supposing they were all reduced to just under £500 a year, and that the balance of £500,000 were paid to those other two. Then each of these would have £250,000 a year. The Van Dyck is put up for auction in this community. The poor families, of course, have no show at all. Not one of them can afford more than £50 at the most, however much he wanted the Van Dyck. But the two rich men can compete one against the other recklessly. They have an enormous margin of wealth with which to do what they like, and the Van Dyck between them may be rushed up to £50,000.

There is not a penny more of real wealth in the community than there was before. Yet your Government assessor would come down and assess the community in a very different fashion from the way in which he would have assessed the first community. He will put down the total income at £1,000,000, and the houses, furniture, etc., at so much, and he will add: “Also a Van Dyck valued at £50,000.” Of course in real life, where are great differences of income, this sort of thing is multiplied by the thousand. It is another example of the way in which, as communities get more complicated in a high civilisation, economic imaginaries appear.

I am only introducing this subject as a very simple addition to this little book, and I will not multiply instances too much, though one might go on giving examples almost indefinitely.

Here, then, is a last one (4): economic imaginaries due to the confusion between services and economic values attached to material things.

We saw at the beginning of this book that wealth did not consist in things, such as coal, chairs, tables, etc., but in the economic values attached to those things; that is, their added use for the purposes of human beings up to the point where they were beginning to be consumed. We saw how the coal in the earth has no economic value, how it begins to be of value when it begins to be mined, and how each piece of additional labour put into it to bring it nearer to the point of consumption adds to its economic value, until at last, when it gets into your cellar, from being worth nothing a ton (when it was still in the earth) it is worth thirty shillings or forty shillings a ton.

But when people assess wealth for the purpose of taxation, and in order to find what (in their judgment) the total yearly income of a nation is, they count not only the economic values attached to things consumed by the nation, but also services.

For instance: if Jones is a good card player, the rich man Smith may pay him £500 a year to live in his house and amuse his loneliness by perpetually playing cards with him. I knew a case of a man in South Wales who did exactly that. It is an extreme case, but we all of us, all day long, are paying money for services which do not add economic values to things at all, and which yet must appear in assessment.

All the money I earn by writing is of this kind. Now assessment of these services creates an enormous body of economic imaginaries, and to show you how they may do so I will give you an extreme and ludicrous case.

Supposing two men, one of whom, Smith, has a loaf of bread, and the other of whom, Brown, has nothing. Smith says to Brown: “If you will sing me a song I will give you my loaf of bread.” Brown sings his song and Smith hands over the bread. A little later Brown wants to hear Smith sing and he says to him: “If you will sing me a song I will give you this loaf of bread.” A little later Smith again wants to have a song from Brown. Brown sings his song (let us hope a new one!) and the loaf of bread again changes hands and so on all day.

Supposing each of these transactions to be recorded in a book of accounts. There will appear in Smith’s book: “Paid to Brown for singing songs two hundred loaves of bread,” and in Brown’s book: “Paid to Smith for singing songs two hundred loaves of bread.” The official who has to assess the national income will laboriously copy these figures into his book and will put down: “Daily income of Smith, 200 loaves of bread. Daily income of Brown, 200 loaves of bread. Total 400 loaves of bread.” Yet there is only one real loaf of bread there all the time! The other 399 are imaginary.

Now with a ludicrous and extreme example of this sort you may say: “That is all very well as a joke, but it has no bearing on real life.” It has. That is exactly the sort of thing which is going on the whole time in a highly-developed economic society. I go to a matinee and pay 10s. for a man to amuse me. He goes off himself in the evening and pays 10s. to hear a man sing at a concert. Next morning that man (I sincerely hope) buys one of my books, and a big part of the price is not paid for the economic values attaching to the material of it, but for the services of writing it, which is not a creation of wealth at all. The publisher pays me my royalty, and I spend part of it in looking at an acrobat in a music hall. The acrobat pays 10s. to keep up his chapel; and the minister of the chapel, in a fit of fervour, pays a subscription of 10s. to a political party.

And so on. Here is a short chain of economic imaginaries: 50s.—five ten-shilling notes—all appearing one after the other in the assessment of the national income and corresponding to no real wealth.

It is exactly the same thing in principle as the case of the two men singing for one loaf of bread. And the same principle applies to the expenditure of rates and taxes. A great part of this expenditure goes in empty services, not in services which add economic values to things.

We must, of course, distinguish between two things which many of the older economists muddled up. A thing may be of the highest temporal use to humanity in the production of happiness, such as good singing, or of high spiritual value, such as good conduct, and yet that thing must not be confounded with economic values. When one says, for instance, that good singing, or a good picture, or a good book has no economic value, or only a very slight material economic value (the best picture ever painted has probably not a true economic value of more than 20s. outside its frame, unless the painter used expensive paints or a quite enormous canvas) one does not mean, as too many foolish people imagine, that therefore one ought not to have good singing, or good pictures, or the rest of it.

What is meant is that the examination of any one set of things must be kept separate from the examination of another, and when you put down the money spent on these things as though it represented real economic values you are making a false calculation.

Well, this is only a hint of quite a new subject in Economics, which I have put in at the end in the hope that it may be of some value to you. Meditate upon it. As societies get more and more luxurious, more and more complicated, more and more “civilised” (as we call it), so do these economic imaginaries grow out of all proportion to the real wealth of the society. If on the top of their growth you suddenly impose high taxation, based upon your assessment, you may think that you are only taking a fifth or a third or a fourth of the whole community’s real yearly wealth, when in reality you are taking a half or more than a half. And this is probably the main reason why so many highly developed societies have broken down towards the end of their brilliance through the demands of their tax-gatherers who worked on assessment inflated out of all reality by a mass of economic imaginaries.

FINIS