Essentials of Economic Theory - As Applied to Modern Problems of Industry and Public Policy
by John Bates Clark
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Characteristics of an Economic Society.—We have said that there are natural rates of wages, etc., within some area, which we have regarded as containing an economic society, and we have treated this social organism much as though it were as isolated and self-contained as would be an inaccessible island with its population. It has one general market where values are fixed. A farmer within the area covered by our studies produces wheat for the whole society, and in one way or another, every person within the area is a bidder for it. A shoemaker makes shoes and a weaver makes cloth to offer to everybody. Each part of the organism ministers to the whole and is ministered to by the whole. Competition is ideally free and in a sense is universal. The general system of groups made up of the A's, the B's, the C's, and the H's of our table illustrates the manner in which this complete and self-contained society is organized. In the static state there is one standard of wages for all these groups and their subdivisions and one equally general standard of interest. The price of a commodity, barring some allowance for cost of carrying it, is uniform everywhere. A reduced price for A'''M in any part of the area where this society dwells would set men bidding for it from every quarter of that area and would thus bring the local prices to uniformity. So a high rate of pay for labor in one part would at once lure men from every other part and reduce the high pay to the standard generally prevailing. The picture is that of a social body having a large geographical extension and yet intensely sensitive at every point to economic influences. Prices, wages, and interest everywhere respond at once to an influence that originates in any part of the extended area. In technical terms this means that there is perfect mobility of labor and capital within the group system represented by the table, and that this involves equally perfect mobility as between parts of the area that the groups inhabit. Men move from one section of the country to another in response to an economic inducement as readily as they do from the group A to the group B.

Barriers which divide the World into Economic Sections.—Now it is clear that in the actual world changing one's place of abode is difficult, and even sending capital from place to place is somewhat so. Inequalities of earning power are not leveled out by a quick migration of laborers from China to Europe or to America. In their methods of production the different regions are not brought to a uniformity, for there is machine labor here and hand labor there; and it is vain to expect that machines will quickly become universal and that the practical arts in America, Africa, and Asia will be rendered uniform by such a quick adoption of the most efficient processes as economic law, in the absence of friction, requires.

Boundaries of the Society which is here Studied.—If we take the world as a whole into the circle covered by our studies, we find that labor, compared with other economic elements, decidedly lacks fluidity and does not easily move. So far from being like water, which flows readily and finds its level quickly, it is more like tar or other viscous stuff, which flows slowly and is long in leveling out local irregularities in its surface. In the world as a whole there are regions crowded with people and other regions nearly unpeopled, and long will it be before some of these differences will be much reduced. Many centuries, indeed, must pass before they are entirely removed. If, however, we take the most active part of the world,—western Europe, most of North America, Japan, and the more fully settled parts of Australia,—labor will show a degree of mobility that makes it more like the water of the illustration, and capital within this active center of industrial operations will be more fluid still. Prices here tend toward certain general standards, and processes of production and methods of organizing the forces which do the producing work tend strongly toward uniformity. The best processes and the best forms of organization tend generally to survive. There are imperative reasons for studying the economy of this highly civilized region, the center of the economic activities of the world, apart from that of the more undeveloped regions.[1]

[1] This is far from implying that economic laws do not work in the excluded outer area or that no effects are produced within the central area by causes that originate in the outer zone. How these things take place we shall later see.

The Need of a Rule by which a Part of the World may be Treated as an Economic Society.—This involves finding a way by which we can treat a limited part of the world much as though it were, for our purposes, the whole of it. In essential ways the economic center that we have described does act somewhat as if it were an organism complete in itself. We must draw a boundary line about the area of active movement, of lively interchanges, and of general sensitiveness to economic influences, thus separating it from the broader zone of sluggish movement of capital and population, of slow response to economic stimuli, and of generally backward conditions.

Freedom of Movement as a Test.—In Europe, America, and the other advanced regions goods are carried from place to place so easily and quickly that there is a tendency toward uniform prices; and such local differences of price as exist in the case of any commodity do not much exceed the cost of getting it carried from one place to another, though in the cost of moving it there must often be reckoned the toll which a government takes at the customhouse. Capital moves freely, and there is a certain approach to a general level of interest, though here also local differences of course survive. The obstacle to the moving of capital from one place to another, if the owner does not go with it, is occasioned mainly by the risk it encounters and by a virtual bill for insurance. With allowance for this cost, rates of interest in the region we have described tend toward a general level. Though labor migrates more slowly than capital, it moves far more rapidly within the economic center than in the outer zones. Processes of production are not brought to a complete uniformity within the center, but they tend powerfully toward it; for while obstructions exist, they surely and not always slowly yield. With due regard for such differences of method as those existing between the European ways of making products and the American ways, we may say that the tendency toward the general survival of the best methods is too strong to allow any important differences to be permanent. Everywhere, in short, within the central area there is a strong tendency to conform to economic standards in the matter of prices, wages, interest, industrial processes, and forms of economic organization. The standards are what we have defined as the static ones. If we should stop progress and all disturbing influences and wait long enough, we should see values, wages, interest, etc., take a static level throughout the vast area. This, however, would require that migrations should go on till all inducement to move from place to place should have ceased to exist. Population would then have distributed itself over the land in the most advantageous way, and no body of people would be better off than any other by reason of the location of their abode. A long period would be needed to bring about this adjustment even within the circumscribed area where influences that make for change are very active and where obstacles are far smaller than they are in the uncivilized regions.

Essential Density of Population.—A perfectly static state requires, not a perfectly equal distribution of population, but such a distribution that there is no reason for further migrating. The power of the soil to feed its inhabitants varies with its fertility. Where the land is highly productive a dense population may live easily; whereas on a sterile soil even a sparse population may find natural resources too meager, and men may move to places which are more thickly peopled and yet may gain by the change. Moreover, such occupations as manufacturing and commerce require, of course, a far larger population on a given area than does any form of agriculture. Some regions are so undesirable as dwelling places that it takes an exceptional economic reward to induce men to live there. The static state is one in which, all these things being considered, there is no reason for changing the place of one's abode. This implies more nearly equal density per unit of natural resources than equal density per unit of mere area. Inequality of advantage due to location is what is leveled out, and doing this does not require nor permit that population should everywhere be equally dense per square mile or per acre.

Effect of Differences of Occupation.—Regions given over to agriculture naturally sustain more people than those devoted to grazing, and those which are devoted to manufacturing sustain more than either. In countries in which, as in Great Britain, manufacturing is so disproportionately developed that products must be largely exported, while food must be largely imported, given areas sustain more inhabitants than they do in any agricultural or grazing region and more than they do in any region where grazing and tillage, on the one hand, and manufacturing, on the other, are well balanced. In mills and shops auxiliary capital so abounds as to take the place of the abundant land that is available in the other cases for making labor fruitful, and in villages and cities labor does not overtax the resources of the soil any more than it does on farms. It has area enough to live and to work on and tools and materials enough to work with. In a generally crowded country, the resort to commerce and manufacturing relieves the pressure on the land, cities abound, and an abundance of capital averts the danger of a disastrous overcrowding.

An approximately Static Distribution of Population.—The apportionment of population among the different sections of a country may be nearly normal, while migration may still go on from that country as a whole to remote parts of the general area which we include in our present study. There may be small reason for moving from one part of Germany to another and large reason for going from Germany to America. This larger movement occupies a long time, while certain other adjustments may be made more quickly. Within Germany and within the United States labor may be well apportioned among the different occupations. There may be in each country about the right comparative numbers of cotton spinners, iron workers, gardeners, wheat raisers, etc.; or in other words, the distribution of labor among the industrial groups may be approximately normal both within the one country and within the other. It may further be true that the division of occupations between the two countries in their entirety is about what, in the conditions now prevailing, economic law calls for. There are certain industries which now have their habitats in Germany and certain others that have their habitats in the United States, and this arrangement is partly due to the comparative density of the two populations. Because there are so many persons per square mile of land in Germany there is there a certain preponderance of manufacturing, and there are in America less manufacturing and relatively more agriculture. In that remote time when the relative density of the two populations shall become static, America will have reason to increase the comparative amount of the manufacturing and thus put herself in this particular more nearly on a plane with Germany. This occupation has its normal abode in regions of comparatively dense population, and a gain in comparative density means an increase in the amount of productive energy devoted to it. The place for the mill is where the land is crowded, and the better place for the work of tillage is where it is not so.[2]

[2] It will appear that manufacturing reacts on the density of population, first, by retarding emigration from the thickly populated country as a whole; and secondly, by causing local movements within the country, whereby cities and villages grow, and relieve what would otherwise be an excess of labor in agricultural regions.

How an Unnatural Distribution of Population may be Treated.—So long as the slow movement of population from country to country remains incomplete, the ultimate division of occupations between the countries can never be completely static. It is therefore with a division that is only approximately static that we have first to deal, and this is realized when in view of the comparative density of population in the different regions which now exists occupations are naturally apportioned.

The base line AD of this figure stands for the part of the world in which economic law works rapidly and encounters comparatively few obstructions; and the extension of the line represents the lands outside of this region in which the laws are sluggish in their action. It is as though this base line were a section of a vast surface including both civilized and primitive states. AB represents the smallest population per unit of land of a given quality within the central area, and DC represents the largest, while the ascending line BC shows the gradations of essential density in the peopling of different parts of it. At the point A the pressure of the population on the resources of the soil is least, while at the point D it is at its greatest. At the point A a man can get much out of the soil as the return for his own bare labor, while at D he can get comparatively little; and at intervening points on the base a man gets more than he does at D and less than he does at A. His gains measured in bushels of wheat, etc., vary inversely as the density of the population and so decrease from the left of the figure toward the right till the point D is reached. The occupations of the different localities are determined by these facts.

How Occupations vary with Differences of Land Crowding.—Crowding the arable land causes labor to flow naturally to manufacturing occupations, since in these it is not so greatly handicapped in comparison with the labor of more sparsely peopled regions. In a cotton mill in Manchester a man may contribute as many yards per day toward the product of the mill as he would in a mill in Fall River; but on an English farm one man's labor does not create as much produce as it does on an American farm. The large amount of available land per man in America has a great effect on the amount that a man can produce by tilling it, but it has very little effect on the amount of the cotton goods that his presence and labor in the mill insure. In raising crops, therefore, the Englishman is at a more serious disadvantage in comparison with the American. The fact is expressed in a practical way by saying that the English labor is cheaper and is therefore more available for making things that are exported to the distant markets of the world than is labor of the same kind in America; but the reason for this cheapness is primarily the land crowding, which reduces the productive power of a final unit of labor in the former country. Because the man cannot get for himself many bushels of wheat per annum by working on land he can afford to work in a mill at a rate corresponding with the value of the produce he could secure as a cultivator.[3]

[3] In this connection see the discussion of the principles of international trade in J. S. Mill's "Principles of Political Economy," Book III, Chapter XVI.

General Differences between the Condition of Densely Peopled Regions and that of Sparsely Peopled Ones.—In a very general way it may be said that the comparative amount of manufacturing should naturally vary directly with density of population, and that the comparative amount of agriculture should vary inversely to it. In computing density due regard must, as has been indicated, be paid to the quality of the land as well as the area, since a number of inhabitants which would unduly congest a sterile agricultural region can be well maintained on a fertile one. In the accompanying figure the line AD inclosed by the vertical lines represents the part of the earth which we have called central, and the left side of it is the part of this area which has the sparsest population, while the right side is that which has the densest. The rising line BC represents the varying density of the population in different parts of the broad area we regard as general economic society, the dotted line EF may be taken as expressing the increase in the part of the labor and capital of the country devoted to manufacturing as population becomes denser, AE measures the proportionate number of persons engaged in manufacturing in the region of sparsest population, and DF measures the comparative number in the region most densely peopled.

AG and DH represent the numbers engaged in agriculture in the two regions, and the descent of the line GH represents the predominance of agriculture in the sparsely populated part and the subordination of it in the part that is densely populated. If we assume that capital in the different types of employment varies as does labor, the descent of this line toward the right means a decline in the fraction of the whole force of labor and of the whole fund of capital devoted to cultivating the soil; while the upward trend of EF means the enlarging proportion of labor and capital devoted to manufacturing as we pass from a region of sparse population to regions more and more crowded. The wavy character of the two dotted lines is designed to express the fact that local conditions other than mere density of population favor the one type of occupation rather than the other; and moreover, nothing in the figure is intended to mean that the increase in manufacturing and the comparative decrease in tillage from the left of the diagram to the right are in any exact numerical proportion to the increase in the density of population. The figure as a whole rudely represents the fact that an approximation to the static distribution of population insures an approximation to a static apportionment of occupations within the described area and indicates the general nature of that apportionment.

How Cost of Production and Cost of Acquisition are Equalized.—The costs of moving goods from place to place—including in these costs commercial charges and duties imposed by governments—are the cause of most of the manufacturing that is done in the region represented by the left side of the diagram, except the production of such articles for immediate or local consumption as are necessarily made at or near the places where they are used.[4] Tailoring, blacksmithing, carpentering, general repairing, etc., would always be done in that region, but many kinds of staple goods capable of being transported would, in the absence of duties on imports, be made chiefly in the region of dense population and cheap labor.

[4] There can be no large area from which manufacturing is excluded. The rural hamlet has its blacksmith, wheelwright, and carpenter, its sawmills and gristmills; and manufacturers of sashes, doors, furniture, and many implements abound where agriculture is the general industry. Special advantages for production insure the introduction of other industries, and the advantages of being near to customers is enough to maintain many of them. Repairing must, of course, be done everywhere, and in making some articles for local use it is best that the artisan should be where the customer can always reach him. A large cost of transportation favors local industries, a high degree of productivity in agriculture has an unfavorable influence, and a protective tariff on manufactures reduces the returns from agriculture and favors manufacturing industry.

The general rule for determining whether a branch of manufacturing can survive in the area of abundant land and well-paid labor is as follows: it can do so if the cost of making the article which this branch of business is devoted to producing is as low as the cost of acquiring it by exchange. The cost may in both cases be reduced to bare labor and the rule will then stand thus: if ten days' labor will make the article and if nine will make something that can be exchanged for it—i.e. if all the costs of the exchange can be covered and the thing can be brought from abroad for a total expenditure of nine days' labor instead of ten—the manufacturing of that article will not survive. In a region of abundant land and well-paid labor it is chiefly the tolls which governments exact which make it as costly an operation to get the manufactured products by producing other things to barter for them as it is to make them directly. Density of population, overworking of land, meagerness of returns to agricultural labor—these are the conditions that primarily fix the habitat of most kinds of manufacturing. In the case of particular products these influences may be overcome by the presence in limited parts of the sparsely settled area of exceptional natural advantages for production. Natural gas, special ores, particular kinds of lumber, etc., may draw some branches of manufacturing to the region of fertile land and high wages; but as the comparison which we are making is the most general one which it is possible to make we are safe in our assertion that, in the main, manufacturing processes tend, in the absence of exceptional influences, to concentrate themselves in the region of dense population and of meager earning power of labor.

The Approximate Static Adjustment of Prices.—In the main, and with tariffs as they are, the price of raw products is somewhat lower at the left of the figure, while that of highly wrought merchandise is markedly lower at the right of it; and with the comparative density of population as it is and with no change of commercial policy on the part of governments, this condition may be expected to continue. It is an approximately static adjustment of prices. Purchasing manufactured goods in Europe will long be profitable if they can be passed duty free through the customhouse, while food will be somewhat cheaper in America.

Static Wages and Interest.—As has been said, the wages of labor are comparatively low at the right and high at the left of the figure, while interest varies in the two regions in the same way. It is lower in the crowded area. This is not because of the presence of many men, for this influence alone would tend to sustain the productive power of capital and the consequent rate of interest, and in fact the interest on capital in Europe would be lower than it is if the population there were sparser. The rate which prevails is fixed by the productive power of a very large fund of artificial capital utilized by a large population meagerly supplied with land. This last item is decisive in the case and is a primary cause of low interest. The full statement of these facts, made in graphic form, shows an ascending line of density of population, as we proceed from left to right, an ascending line of price for raw produce, a descending line of price for highly wrought merchandise, and descending lines for wages and interest. All these lines represent the facts in a broadly general way. They deal with averages and not with particular rates. The labor whose earning power descends along the line numbered 5 is of many kinds, and the produce of which the average values vary along the lines numbered 2 and 4 is of many varieties. The rate of ascent or descent of the lines has no especial quantitative significance, and it is therefore not implied in the figure that wages decline more rapidly than the other factors. Moreover, it is such large areas as those of England, Germany, France, or the Mississippi Valley, including both cities and rural lands, that we have in mind when we speak of the density of population as ascending along the line numbered 1. Anywhere we expect to find cities containing more persons to the acre than rural districts. The purpose of the figure is to enable us to take in at a glance five different adjustments that in the main are to be regarded as approximately static within the great region described as the economic center of the world.[5]

[5] The law of the distribution of occupations over the area represented by the diagram would, if it were more fully developed, present an amplification of the law of International Trade stated in Mill's "Political Economy," according to which countries naturally produce, not only the things for the making of which they have the greatest absolute advantage, but those for which they have the greatest relative advantage.

Slow Change of the Foregoing Adjustments.—The line which represents the comparative density of population is of course slowly changing position as migration goes on from the older centers of population to more newly occupied regions. If the present distribution of population be represented by the line numbered 1, the distribution a hundred years hence may be represented by the dotted line numbered 2, and that which will exist after five hundred years shall have passed may be represented by the dotted line numbered 3. Even within the economic center the comparative density of population in different divisions is therefore not to be treated as strictly permanent, and it is not to be treated as in any sense permanent when we are forecasting effects that will be realized several centuries hence. For a problem involving a score or two of years the general conditions we have described may be treated as, in the main, abiding.[6]

[6] The reason for confining attention to the central zone is partly, as we have stated, because here only do we get a quick response to an economic influence. Overproduction of any article quickly lowers the value of it throughout the area, and a mass of unemployed laborers affects wages throughout the area more speedily than it does in the great environing zone.

This, however, is only one reason for this limitation of the scope of our immediate study. A serious fact is that, if we include the entire world, we cannot establish, in the way we have proposed, the natural standards toward which values, wages, and interest are tending. It will be recalled that in the static division of this treatise we have attained a "natural" standard of wages by assuming that all dynamic changes were to cease and that labor and capital were to move to and fro in the system of industrial groups till each of these agents produced as much in one subgroup as in another. A computation of this kind might, within a limited area, be made periodically, say once in ten years, and if this were done it would give a series of static standards of wages. Now these standards become higher as time advances. The static rate of pay for labor is, as a rule, higher at any one date than was the standard for a date ten years earlier, and lower than will be that for a date ten years later. The normal rate of pay about which actual wages fluctuate is a rising one.

Now, if we introduce in imagination an absolutely static state for the world at large, we shall have to assume that growth of the general population and increase of the aggregate capital both cease, and that inventions and new cooerdinations are no longer made. We must then wait long enough to allow static distribution of industries to be made over the whole world and to let each industry find its absolute habitat. This would involve causing methods of producing any commodity to be unified the world over. Hand labor in the Orient would have to give way to machine production, as it has done in Western lands. For a strictly static adjustment indeed even the density of population in the different sections would have to be brought to a virtual equality. While this nearly interminable process was going on, it would be needful that such dynamic changes as inventions and discoveries bring in their train should be absolutely precluded. Stop making new kinds of machinery and wait for centuries to allow a static adjustment to be made over the whole earth—such would be the order.

Now, such a test as this would show falling wages in the more favored parts of the earth, whereas the facts show rising wages. The influx of population from the East, unrelieved by a corresponding influx of new capital and by more fruitful methods of production, would cause the earnings of an American laborer to fall, and we should, on the basis of such a test, conclude that his wages in the long run are destined to become lower in consequence of the movement of the vast populations that now congest great Asiatic countries. We should have vitiated the problem by holding the growth of capital and the progress of invention in abeyance. This may be done within a limited area without giving a false result, because there adjustments are more rapid, and waiting for them does not involve the long-continued paralysis of the powers that make for greater wealth for laboring humanity. Apply the test of the static state to the economic center, and it will give a generally true result; but it will give a false one if it be applied to the world as a whole. The merely static adjustment of the world would take more centuries than we care to reckon, and no truth that we are seeking is revealed by assuming that for such a period the forces of progress are brought to a standstill.



How the General Unification of Methods of Production Calls at First for an Increased Exportation of Capital from the Central Area and Checks the Immigration of Laborers.—A study of the causes of the interchanges which take place between the economic center and its environment shows that the movement of goods, the diffusion of modern methods of making goods, and the movements of capital and labor across the border of the economic society we are studying are interdependent. Opening a field for a profitable export trade increases the productivity of labor at home and tends to attract immigration. On the other hand, establishing in the outer zone a market for the products of the center prepares the way for introducing modern manufactures into the more densely peopled parts of the outer area. The company that sells cotton goods to the Chinese or the Hindoos will find that there is more to be made by utilizing the cheap labor of those peoples for making the goods by efficient machinery. Commerce tends to diffuse a knowledge of the most economical processes of manufacturing, and this interposes a certain stay on migrations of labor toward the center. It will in time help to retain Chinamen in China and Hindoos in India. It does, however, cause a movement of capital from the center outward, followed in time by a creation of wealth in the outer zone for proprietors residing within the center. The Englishman draws dividends from investments in many lands not within the field covered by the present studies. In so far as he reinvests them, as capital, in those lands, they supply a need that, without them, would have to be supplied by a new exportation of capital from the home country, and they therefore tend to check such exportation. In so far as the dividends are brought home they directly neutralize a certain amount of exportation of capital.

Effects experienced within Economic Society from Interchanges with the Environing Area.—The introduction of improved methods of production within the central area usually calls for an expenditure of capital there, and this is largely furnished from the net profits from previous economies in production, and will, in its turn, furnish net profits that will convert themselves into the capital needed for applying future inventions. The study of the causes of an increase of capital, as well as of each of the generic changes that are going on within the center we defer for later chapters; but at present we need to know that the changes going on within what we define as economic society are affected by the intercourse which that society maintains with its environment. Immigration across the outer boundary of the general division enhances the rapidity of growth of the population within it, while emigration reduces it. Exporting capital in itself reduces the rate of accumulation at home, and importing increases it. Introducing into foreign regions economical methods in use at home, modifies the trade which goes on between the great areas, and there is a perpetual rivalry between the direct and the indirect process of obtaining goods at home. When a unit of labor can directly make more of A''' than it can procure by making A and exchanging it abroad for A''', the manufacture of A''' is legitimate and profitable, but when the unit of labor can procure more of A''' by the indirect process in which an exchange with a foreign region intervenes, static law requires that this indirect process be resorted to. We should make A and buy A''' in order to get the most of the latter commodity. This is the essence of the time-honored argument for freedom of trade, but the conclusion to which it leads is modified by a consideration of further dynamic influences which will, in due time, be presented.

How we may get Valid Results by Studying only a Part of the World.—It is entirely possible to study by themselves the activities of such a part of the world, and we will therefore draw a line of demarcation about the countries which constitute the economic center of it, and thus include an area within which economic causes produce speedy effects. Each part of this area quickly responds to influences that originate in any other part. If the steel mills in America make radical improvements in their machinery, this change should, in the absence of a strong monopoly, affect the price of rails in England, Germany, etc. Within the central region wages and interest tend toward uniformity, though, as we have seen, they do not attain it. Across the boundary which separates this center from the outer zone, economic influences act in a more feeble way and are unable to bring rates of wages and interest even to an approximate equality. Western Europe, America, and whatever regions are in very close connection with them, we treat as a society, with the remainder of the world as its environment. This center trades with the environing region, sends some capital and labor thither, and draws some of each thence to the home countries. Willingly or otherwise, it instructs the people of the outer region in modern methods of industry, and thus causes what we may regard as a slow annexation of a part of the outer zone to the economic center and a modification of the character of industries at home and abroad. The principal movement of labor is in an inward direction, and from our point of view it is immigration not into one country merely but into all economic society. The predominant movement of capital has been outward.

Mode of Studying Interchanges between Center and Environing Zone.—All these movements have to be recognized in a study of the economic life of the central society. How, for example, is commerce with undeveloped regions to be regarded if we have the center only in view? It is simply one of two possible ways of getting goods. The people of the center can make a commodity that they use, or they can make something to send into the outlying countries in exchange for it. In the latter case they acquire it indirectly rather than directly, but they acquire it by their own industry in the one case as well as in the other.

Natural Selection of Modes of procuring Usable Goods.—Under natural influences, as we have said, men select the most economical way to get what they use, or—what is the same thing—they select the mode of utilizing their own labor and capital that will give them the largest return in goods. There is competition between different methods of directly making goods, and the best method survives. The man with a good machine undersells the man with a poor one; this latter producer must improve his equipment, or fail, and appliances thus tend toward a maximum of efficiency. In like manner there is competition between the direct and the indirect mode of obtaining goods. The man who, by using a certain amount of labor for a week in making steel for exportation, can obtain in exchange fifteen yards of silk, can undersell and drive from the field the man who, by using the same amount of labor for a week in silk making, can produce ten yards of silk. The importer naturally supplants the manufacturer when, by bartering with foreigners the product of a given amount of labor, he can get from them more than can be produced at home by the same amount of labor. The manufacturers naturally survive when direct production gives the larger returns. In our studies of the economy of the society that is most advanced and central, we may treat whatever is imported as, in an indirect way, produced. In a sense the activities of that society are nearly self-contained since, by the direct or the indirect method, the people produce within their own boundaries the most of what they consume. In doing so they naturally use with a maximum of economy the forces at their command, and resort to traffic when that is profitable.

Mode of Treating the Exportation of Capital.—Capital is moving across the boundary mainly in an outward direction. This fact, standing alone, would be equivalent to a mere retarding of the rate of increase of capital within the economic center; but the exported capital, as it is used outside of the exporting society, produces an income for owners living within it. The income comes in kind, since it takes the form of goods which are an addition to those imported in the course of ordinary exchanges. This tribute paid to capitalists within the industrial center comes chiefly in the form of consumers' goods, the receiving of which does not entail the producing of something to send away in exchange for them. The material agent which creates the imported goods remains outside of the society, and sends its product into the society with no offset. The fact of such an income coming from beyond the pale of an economic society has compelled us to qualify the statement that the economy of the society is self-contained, for there is a small part of its income which is not created within its borders. This comes about by the exportation of capital and the importation of some of its products.

Effects of Drawing Interest from Investments beyond the Social Boundary.—Not all of these are consumers' goods. Some capital goods are imported and, moreover, many consumers' goods are passed over to the group called HH''' in our table,—the one that makes active instruments of production,—and in this indirect way the earnings of capital invested abroad add to the amount of capital at home. In the long run the exportation of funds for permanent investment may, by its other and more indirect effects, increase the supply of them at home. The literal fact in each year is that what is exported is itself a reduction of the amount that would otherwise be added to the home supply, but that the income accruing from what has been exported in earlier years makes an addition to what is in this year accumulated at home. Primarily, the exportation of capital is to be treated as causing a modification of the rate of accumulation of capital and, in a long term of years, an increase of the rate.

Movements of Labor.—Laborers cross the boundary in both directions, but inducements favor the inward movement. In the absence of positive obstacles the denser populations of Asia could overflow into America with a startling rapidity. Such a movement, on whatever scale it occurs, is to be treated as causing an acceleration of the rate of increase of the population within the center. Whatever results arise from growth of population within are emphasized by immigration.

The Assimilation of Economic Methods and Forms of Organization.—People without the center are borrowing from it the newer and more efficient methods of production. Already Asiatics are making some things by machinery, and when they shall do it more generally there will take place changes that will be very revolutionary in their own economic life and will react on the life of the center itself. Learning to use a thousand and one machines will rend China and disturb Europe and America. In general, better appliances and a more efficient organization will make it possible for Asia to create for herself, and ultimately export much that she now imports, and this will react on the character of the industries of America and Europe. We shall somewhat modify our industries in order to get the benefit of new openings for commerce, and some of the things which we now directly produce we may find it more profitable to get by exchange, which is indirect production. On the other hand, some foreign products which we now get with great economy of labor, because the goods we exchange for them are scarce and dear in the countries that receive them, we shall get on less favorable terms, because the goods we now send to the foreign lands will have become there more abundant and cheap. In general, we must regard the opening of a profitable avenue for trade as we should the invention of a new machine, the discovery of a better electrical transmitter, or the utilizing of a cheaper motive power. It gives us more goods as the fruit of a given expenditure of labor and capital and affords a profit which, as we shall see, comes first to entrepreneurs and later to laborers and capitalists within the pale. Ultimately, those living beyond the pale will get a share of this gain.

Summary of Facts concerning the Economic Center.—We may, then, regard a certain limited part of the world as a society in itself. It is modified by its environment, but, in an important sense, it has a self-contained life. The economic changes which go on within it can be grouped under the five generic heads: increase in the amount of labor, increase in the quantity of capital, improvement of method, improvement in organization, and changes in the wants of the individual consumers.

The Geographical Boundaries of Society not Fixed.—The boundaries of this central area are not fixed. As relations between the center and the part of the outer zone which is nearest to it become more and more intimate, the adjacent region takes on the character of the center. It is, in an economic way, assimilated to it; and in this way the center may be regarded as annexing to itself belt after belt of the environing world. Ultimately it will doubtless annex the whole of it; and for this reason, even though we confine our studies to the center, we shall establish a system of economic laws which will apply, in the end, to all the world. This indeed is not the only way in which the economic life of the outer area comes into the economist's purview, for he can study it for itself. This zone has its peculiar life, which is a distant reflection of the life of the center. It is a type of economic activity in which all the primary forces work, but in which friction abounds and adjustments are made with extreme slowness. For the present, what interests us is the life of the center itself, and in studying this we take account of the influence of the environment. The effects of these influences are first seen in changes in the rate at which the five general dynamic movements go on within the center. The grand resultant is more rapid progress within the center.

What is involved in a Full Study of the Relative Density of Populations.—A full treatment of the subject of the comparative density of population in different places would include an extended study of the kinds of industry which find their natural homes in densely peopled countries and of those which flourish in sparsely peopled ones, and a much more detailed tracing than it is possible here to undertake of those changes in the character of industries everywhere which result from a leveling out of differences in population. Clearly, if all America were to become as crowded with inhabitants as are Holland and Belgium we should develop industries of a different type from those that we now have, and the change would be in the direction of producing relatively more form utilities and relatively less of the elementary utilities. Labor and capital would move from the subgroups which in our table we have called A, B, and C toward A''', B''', and C'''. We should spend more of our energy in making finished goods and less in getting raw materials. I shall note in a very general way the changes in social industry caused by increase of population without looking forward to that remote time when the density of population shall be equalized.

Why an Approximately Static Adjustment of Industries within the Central Area permits Unequal Density of Population in Different Parts of It.—We exclude from view the ultimate static adjustment of the whole world, and content ourselves with an approximate adjustment within society as we have defined it. Even within this limit there are inequalities in the density of population which it would require a very long time to remove, and a perfectly static state cannot be reached till they are leveled out. The selection of industries in Texas and in Belgium cannot be, in the ultimate sense, natural till population in these two regions is so adjusted that there is no longer an economic motive for migrating from the one to the other. If, in order to determine what an absolutely static condition for the central society would be, we were to apply the rule of imagining all new dynamic influences precluded and of allowing time enough to elapse to bring about a normal apportionment of population within that limited area, we should encounter a measure of the same difficulty which confronted us when we proposed to attain a similar static state for the entire world, though the trouble would be less serious in degree. In waiting long enough for population to distribute itself naturally, we cut off influences that, within that period, will affect production and distribution far more than the change in population will affect them. In so far as Texas or any newly occupied region is concerned, the changes thus precluded are those which would have tended to reverse the effect of the redistribution of population. Migrations from Belgium to Texas, if extensive and long continued, would reduce the productive power of labor in Texas; while the dynamic changes which will actually go on within any such period will increase the productive power of that labor, and it is not certain whether the one or the other influence will predominate. For the United States as a whole it is probable that progress in the useful arts will more than offset the influx of new laborers and give to wages a rising trend. If, however, we establish the natural standard of wages by cutting off such progress and letting the influx of labor continue, the test would give a standard lower than the present one,—a false, as well as a discouraging result. The resultant of all the changes we are about to study will probably give to the future pay of labor in America a rising trend.

How Industries adapt themselves to Unequal Density of Population.—In view of this fact it is necessary to recognize a proximate rather than an ultimate static state as that toward which the adjustments now going on are immediately tending. We will treat the unequal density of population within our economic society as something which will last, not forever, but so long that it will not be removed or appreciably affected within the period required for the other adjustments that we are studying. Given a population that is dense in Belgium and sparse in Texas, and competition will cause the industries to take on the types which they would have and retain if that difference in density were destined to be permanent. The type toward which the economic life of both regions is tending is thus a proximate rather than an ultimate one. Each region will, in the near future, be of the type toward which influences which do not involve an equalization of population are impelling it. We get the true direction of the change that is going on in the earning power of labor and in the shape of the industrial organism in both regions by recognizing the fact that the differences in the density of their populations will continue through the period which we are considering.

If the line BC represents the productive power of a unit of labor in a region which is sparsely peopled, and the line B'C' represents the productive power of a unit of labor in a densely peopled region, we may assume that AC and A'C', which are equal to each other, represent the product of a unit in either locality when, general progress being precluded, the difference in the density of population should have been leveled out. Move people at once and in a wholesale manner till there is nothing to be gained by further moving them,—let pressure of population on the land be fully equalized,—and you may be supposed to create a condition of uniform productive power for laborers of a given grade in the entire region. The horizontal line AA', which is everywhere the same distance above the line CC', represents the universal level of the productivity of labor in such a theoretical condition. The line BB' represents the actual and different levels of the natural earnings of labor in the different regions. Assuming that all other static adjustments are made, but that the equalization of population has not taken place, labor will earn the amount BC in one place and the amount B'C' in another. Somewhere it will earn an amount represented by the vertical line descending from D and somewhere that expressed by the line descending from F, while there will be places where the earnings of labor are measured by the line descending from E, which is the amount that labor would everywhere create and get if the population could be quickly made normal in all regions. The standard of wages for the whole of the great region, largely European and American, which constitutes the economic center of the world, shows varying levels in different countries and parts of countries, and the actual rates in every place fluctuate about this proximately normal standard for that place, the standard rate in one locality being higher than that of another.

The line A'B' exceeds in length the line AB, and this expresses the fact that equalizing the pressure of population on the land in different regions adds more to the productivity of labor in the region now crowded than it deducts from that of labor in regions now sparsely peopled. The overcrowding does greater and greater harm the further it is carried, and therefore taking away a surplus of people from a region which has suffered greatly from overcrowding affords a relief which more than offsets what is lost in other places by a moderate increase of population. Moreover, the fact has to be recognized that at present there are ten square miles of sparse population for one that is very densely peopled, and reducing all to an equality would add only slightly to the number of inhabitants of the regions that now contain few of them.[1]

[1] Exceptional local conditions may make an influx of population for a time a cause of greater productivity rather than of less. The general and permanent effects are otherwise, and it is on these that the present argument rests.

If the line BB' represents the unequal level of natural wages in different localities, on the assumption that populations remain unequal, the undulating curve DD' which crosses and recrosses the line BB' represents actual local rates fluctuating about the standard ones.

How a Static Adjustment for the World is a Dynamic Influence within a Limited Part of It.—Commodities are, by traffic, crossing the social boundary in both directions, and with the goods there go and come influences that affect the economic life of the central society. Methods and modes of organizing business are taught by each region to the other, though most of the teaching is done by the people of the center and most of the learning by those of the environment. All this affects the center and falls within our study. It has dynamic effects within the center, though it is only a part of a static adjustment for the world as a whole. If the grand bank of Newfoundland were to subside to the level of the middle of the Atlantic, there would be a great rush of water toward the place that the banks now occupy, but this would be only what is required in bringing the general level of the sea to an equilibrium. It would be essentially a static phenomenon, but for the region of the banks it would be dynamic in the highest degree. A rush of population from China to America would be a change tending to establish an equilibrium of population in the world, but it would be a startling bit of dynamics for America. Teaching the Chinese all the mechanical arts that we know would be creating an equilibrium of another sort, in which methods would be similar in the two countries; but for China itself this acquiring of practical arts would be dynamics acting on a vast scale. What is a static adjustment for the world is a dynamic change for parts of the world, and all such changes that can occur within the area of economic society proper and within the period we can wisely include in our study we need to take into account. Changes in population, wealth, method, and organization must be studied, however they may originate.



Perpetual Change of the Social Structure.—We confine ourselves to that economic society par excellence which we have called the industrial center of the world. In this region economic influences are forever changing the very structure of the society itself. They move labor from place to place in the system and they transfer capital to and fro in the same way. If we think of our table of groups and subgroups as representing the whole of this great industrial world, we must think of labor and capital as in a perpetual flow from subgroup to subgroup, making some industries larger and others smaller by reason of every such movement. The great force of labor and the fund of capital are like restless seas whose currents carry the water composing them now hither and now yon as the direction and force of the moving influences change.

Movements of Labor within the Group System caused by Increasing Population.—If the population were to increase while the amount of capital and the mode of using it remained the same, the effect would be a downward movement of both labor and capital in the series of subgroups by which we represent industrial society. Labor and capital would tend to desert the subgroups A''', B''', and C''' in our table and to move to A, B, and C:—

A''' B''' C''' A'' B'' C'' A' B' C' A B C

Causes of Downward Flow of Labor in the Group System.—A larger population means, of course, not merely an increase in the amount of labor performed, but also an increase in the number of consumers. It means more mouths to feed and more bodies to clothe. It entails also, according to principles that we have already studied, a lower earning power and a lower rate of pay for labor. This means that simple food, cheap clothing, inexpensive houses, furnishings, etc., constitute a larger element in the consumers' wealth of society than they have heretofore done. Society uses fewer luxuries and more necessaries, and the necessaries of life are products in which raw materials predominate and costly form utilities are wanting. This makes a heavier draft upon the land than does the production of highly wrought articles of the same value.

Luxurious articles are fashioned with a great amount of artisan's or artist's labor and a relatively small amount of the labor of cultivators and miners. The subgroups A, B, and C are the ones that furnish the rawest materials, and it is they, therefore, that receive the largest portions of the new labor that enters the field.

How Economic Friction works to the Disadvantage of Immigrants.—Unless capital grows more rapidly than population, there is a certain friction to be overcome in obtaining places for new laborers. If they come largely as immigrants, they are crowded at the points of disembarkation and are then scattered over a large territory. They may have to gain employment by offering to entrepreneurs some inducement to take them. If capital has not increased, and the entrepreneurs are in no special need of new men, they will take them only at a rate of pay which is low enough to afford of itself a slight margin of profit. If the capital has already grown larger and the new men are needed, the situation favors them, and their pay is likely to be as high as it was before, or higher.

The Effect of Increasing Capital.—The growth of capital has an opposite effect. It means a lower rate of interest, though it means more interest in the aggregate, since it insures a larger fund on which the interest is received. The rate does not decline as rapidly as the amount of the fund increases, and this insures a larger gross income from the fund; and it also insures larger individual incomes for many persons. There is, then, a large number of people who are in a position to make their consumption more luxurious, and this causes an upward movement of labor and capital in the group system. More workers will be needed in the subgroups A''', B''', and C''', where raw materials receive the finishing touches, and also in the other subgroups above the lowest tier. It is to these subgroups that a large portion of the new capital itself will come, and the labor will come with it. Larger incomes, more luxury, more labor spent in elaborating goods as compared with that required for procuring crude materials,—such is the order.

Effect of an Increase of Both Labor and Capital.—It is clear that a certain increase of capital might practically neutralize the increase of population, in so far as the movements thus far considered are concerned, and a greater increase of capital would reverse the original downward movement caused by the increase of labor and result in a permanent upward movement toward the subgroups A''', B''', and C'''. In this case the men occupy themselves more and more in making the higher form utilities. They make finer clothing, costlier furniture, etc., and the new production requires proportionately less raw material than did the old. This is the supposition which corresponds to the actual facts. Capital is increasing faster than labor, and consumption is growing relatively more luxurious; dwellings, furnishings, equipage, clothing, and food are improving in quality more than they are increasing in quantity. Goods of high cost are predominating more and more, and the subgroups that produce them are getting larger shares of both labor and capital. Population drifts locally toward centers of manufacturing and commerce. It moves toward cities and villages in order to get into the subgroups which have there their principal abodes. The growth of cities is the visible sign of an upward movement of labor in the subgroup series.

A Change in the Relative Size of General Groups.—If all the steady movements of labor and capital were stated, it would appear that a relative increase in the amount of labor, as compared with the amount of capital, would enlarge the three general groups, AA''', BB''', and CC''', and reduce the comparative size of the general group HH''', which maintains the fund of capital by making good the waste of active instruments. Gain in capital estimated per capita would cause relatively more of the labor and more of the fund of capital to betake itself to the group HH'''. The movement toward the upper subgroups which is actually going on is attended by a drift toward this general group. An increase of luxurious consumption and an enlargement of the permanent stock of capital goods go together.

Regularity and Slowness of Movements caused by Changes in the Amounts of Labor and Capital.—The important fact about the movements thus far traced is that they are steady and slow. They do not often call for taking out of one part of the system mature men who have been trained to work there. They are movements of labor which do not, in the main, involve any considerable moving of laborers from group to group. The sons of the men in the subgroup A do not all succeed to their fathers' occupations, but many of them enter A', A'', and A''', so that labor moves from the lowest subgroup to higher ones. Such a transfer of labor entails few hardships for any one, and in general it is to be said that all the movements of labor and capital which are occasioned by quantitative changes in the supply of these agents are of this comparatively painless and frictionless kind. About changes caused by new methods of production there is a different story to tell. The transformation of the world does not go on without some disquieting results, however inspiring is the remote outlook which they afford. The irregularity of the general movement, the fact that it goes by forward impulses followed by partial halts, is a further serious fact. Hard times present their grave problems, and we need to know whether it is necessary that dynamics—the natural and forward movement of the industrial system—should produce them. This problem is for later consideration.

Movements caused by Changes in the Processes of Production.—Mechanical inventions are typical movers of labor and capital—constant disturbers of what would otherwise be a comparatively tranquil state. Dynamos for generating electricity and devices for conducting it to great distances from its sources have done much to rearrange the society of a score of years ago, as economical steam engines had done at an earlier date. Every device that "saves labor" calls for a rearrangement of labor in the system of organized industry.

In a perfectly static condition there would be, as we have seen, a standard shape for all society, which means a normal apportionment of labor and capital among the producing groups and subgroups and also among the local divisions of the general area. The elements would subside to a state of equilibrium and become motionless, as water finds its level and becomes still in a sheltered pool. The body of fluid takes its standard shape and retains it, so long as no disturbing force appears. Now, society would have such a standard shape and would require, in the absence of dynamic changes, a relatively short time in order to conform more or less closely to it, if it were not for the unnatural apportionment of population in different parts of the area that the society inhabits and the obstacles which wholesale migrations encounter. For the solution of problems of the present and the near future we must accept as a standard the quasi-static adjustment of the population and the consequent quasi-static selection of industries in the different local divisions of the broad area—the arrangement that we have described as locating an excess of manufacturing in the more densely peopled areas and an excess of agriculture in the more sparsely settled ones. With this qualification it may be said that there is a standard apportionment of labor and capital among the producing groups, and that these agents gravitate powerfully and even rapidly toward it. If there were a certain amount of labor and capital at A, a certain amount at B, and so throughout the system, this standard shape would be attained, and the elements would not move, except as a very slow movement would be caused by changes in the comparative density of population of different regions.[1] This standard shape would long remain nearly fixed if it were not for the appearance of the dynamic influences which are so active within the area we are studying.

[1] It is obvious that capital as well as population is distributed with uneven density over the territory occupied by society; but the movement of capital is less obstructed than that of a great body of people, and moreover it is chiefly the fact that the people are not dispersed over the area in a natural way which creates the chief obstacle to the moving of capital. It goes easily when it accompanies a migration of laborers.

Alternations in the Direction of Movements caused by Improved Methods.—In a dynamic state this standard shape itself—the approximately static one—is forever changing. At one time, for example, conditions exist which call for a certain amount of labor at A, another amount at B, etc. A little later these respective quantities at A, B, etc., are no longer the natural or standard quantities; for something has occurred that calls for less labor at A, more at B, etc. If A represents wheat farming, the amount of labor that it required when grain was gathered with sickles is more than is necessary when it is gathered with self-binding reapers, always provided that there has been no increase in population, which would require an increase in the food supply. The society therefore will not be in what has now become its standard shape till men have been moved from the wheat-raising subgroup to others.

If the invention of the reaper were not followed by any others and if no other disturbing changes took place, labor would move from the one group, distribute itself among others, and bring the system to a new equilibrium; but it has not time to do this. It begins to move in the way that the new condition occasioned by the introduction of the reaping machine impels it to move; but before the transfer is at all complete there is a new invention somewhere else in the system that starts a movement in some other direction. Before the labor from A is duly distributed in B, C, etc., there is an invention in B which starts some of it toward other points.

Why Movements are Perpetual as well as Changeful.—Such improvements are perpetual, and the dynamic society is not for an instant at rest. If the disturbing causes would cease, the elements of the social body would find their abiding place; and the important fact is that at any one instant there is such a resting place for each laborer and each bit of capital in the whole system. As we have seen, the men and the productive funds would go to these points but for the fact that before they have time to reach them new disturbances occur that call them in new directions. Again and again the same thing occurs, and there is no opportunity for placing labor and capital at exactly the points to which recent changes call them before still further improvements begin to call them elsewhere.

Why Technical Changes are more disturbing than a General Influx or Efflux of Population.—When the moving of labor is gradual, it is effected, not so much by transferring particular men from one occupation to another, as by diverting the young men who are about entering the field of employment to the places where labor is most needed. When the son of a shoemaker, instead of learning his father's trade, becomes a carpenter, no laborer has abandoned an accustomed occupation and betaken himself to another; but labor has gone from the shoemaking trade to that of carpentering. A man often stays where he is to the end of his life, although during that life labor has moved freely out of his occupation to others. If we represent the facts by a diagram, they will stand thus:—


50 40 70 100 Natural and actual apportionment of labor in 1850.

45 35>—>90 90 Natural apportionment after change of —————^ ^—— method in 1850.

47 38 80 95 Apportionment in 1855 when the movement initiated in 1850 is partially completed.

52 41<—-65 102 Natural apportionment in 1855, with ^————— ——^ movements then initiated.

A, B, C, and D represent different occupations or subgroups in the table we have before used. At one date a static adjustment called for fifty units of labor at A, forty at B, seventy at C, and one hundred at D. A half decade later, after improvements had taken place at A, B, and D, static forces, if they were allowed to have their full effect, would leave only forty-five men at A, and thirty-five at B, but they would place ninety at C and at D. The first movements that would tend to bring this about are in the direction indicated by the dotted lines. The transfers are made, not by forcing men from A, B, and D to C, but chiefly by diverting to C young laborers who would otherwise have gone to A, B, and D to replace men who are leaving in these groups.

Now, before the transfers are completed something happens that calls for a different movement. Let us say that only three units of labor have as yet gone from A to C instead of five, leaving forty-seven at A; only two have gone from B, leaving thirty-eight; and only five have gone from D, leaving ninety-five at that point. Eighty would then be at C, and the static adjustment would not have been perfectly attained. It is at this point that a new change of conditions occurs, which calls for fifty-two units at A, forty-one at B, sixty-five at C, and a hundred and two at D. C now contributes something to A and B, but it gives more to D; and the fluctuations go on forever. Particular men may, more often than otherwise, stay in their places, since the incoming stream of new labor, by going where it is needed, may suffice to make the adjustments, in so far as they are gradually made; but labor, in the sense of the quantum of energy embodied in a succession of generations of men, is never at rest. It is a veritable Wandering Jew for restlessness and in a perpetual quest of places where it can remain. Moreover, there are to be taken into account changes so sudden that they thrust particular workers from one group to another.

A Perpetual Effort to conform to a Standard Shape which is itself Changing.—We think, then, of society as striving toward an endless series of ideal shapes, never reaching any one of them and never holding for any length of time any one actual shape. One movement is not completed before another begins, and at no one time is the labor apportioned among the groups exactly in the proportions that static law calls for. Men are vitally interested to know what they have to hope for or to fear from this perpetual necessity that some labor should move from point to point.

Questions concerning the Effects of these Transformations.—These changes of shape involve costs as well as benefits. The gains are permanent and the costs are transient, but are not for that reason unimportant. They may fall on persons who do not get the full measure of the offsetting gains. What we wish to know about any economic change is how it will affect humanity, and especially working humanity. Will it make laboring men better off or worse off? If it benefits them in the end, will it impose on them an immediate hardship? Will it even make certain ones pay heavily for a gain that is shared by all classes? Are there some who are thus the especial martyrs of progress, suffering for the general good?

Natural Transformations of Society increase its Productive Power.—There is no doubt that the changes of shape through which the social organism is going cause it to grow in strength and efficiency. More and more power to produce is coming, as we have seen, in consequence of these transmutations. They always involve shifting labor about within the organization and often involve shifting laborers, taking some of them out of the subgroups in which they are now working and putting them into others, something that cannot be done without cost.

Immediate Effects of Labor Saving.—Inventing a machine that can do the work of twenty men will cause some of the twenty to be discharged. They feel the burden of finding new places, and if they are skilled workmen and their trade is no longer worth practicing, they lose all the advantage they have enjoyed from special skill in their occupations. Do they themselves get any adequate offset for this, or does society as a whole divide the benefit in such a way that those who pay nearly the whole cost get only their minute part of the gain? Is there unfair dealing inherent in progress in the economic arts, and must we justify the movement only on the ground of utility, though knowing that a moralist would condemn it? These are some of the general questions that are to be decided by a study of this phase of economic dynamics. We need to know both what the movement will in the end do for humanity and what it will at once do for particular workmen.[2] In addition to ascertaining what the ultimate results of the movement will be, we need to trace, with as much accuracy as is possible, the effects of the disturbances that are involved in generally beneficent changes.

[2] Our study may lead to a moral verdict without being itself an ethical study; we limit the inquiry to questions of fact, but perceive that some of the facts are of such a kind that they must lead a reader to condemn or approve the social economic system.



Displacement of Labor and Capital by Inventions.—Inventions are "labor-saving." Employers are engaged in a race with each other in reducing the outlays involved in producing goods, and a common way of doing this is to devise machinery that will do what laborers have heretofore done. The same thing is accomplished by developing cheap sources of motive power or introducing new commodities which are good substitutes for dearer ones. Mechanical automata have at a thousand points taken labor out of human hands; electricity, which is "harnessing Niagara," may at some time harness waves and winds and make them turn the literal wheels of mechanical progress. Such things, by causing a given amount of labor to produce a larger amount of consumers' wealth, are product multipliers; but this is the same thing as saying that they yield a given product at the cost of less labor, and as we more commonly see their effect in this light, we call them labor savers.

Why Labor Saving is not always and everywhere Welcomed.—To an offhand view it would seem that product multiplying is the greatest blessing that, in an economic way, can come to humanity; and if general and permanent effects be considered, it is so. The solitary hunter who has to catch and club his game would get unqualified benefit from the possession of a bow and arrows; the fisherman would get the same benefit from a canoe, the cultivator of the soil from a spade, etc. Society in its entirety is an isolated being and derives similar gains from engines, looms, furnaces, steamships, railroads, telegraphs, etc. Yet there are persons within the great social organism to whom the benefit from one special improvement may be small and the cost great. There are none who are not better off because of all improvements past and present.

The General Demand for Labor not Lessened.—It is a matter of common experience that new machines are labor displacers. At its introduction an economical device often forces some men to seek new occupations, but it never reduces the general demand for labor. As progress closes one field of employment it opens others, and it has come about that after a century and a quarter of brilliant invention and of rapid and general substitution of machine work for hand work, there is no larger proportion of the laboring population in idleness now than there was at the beginning of the period.

A Voluntary Reduction of Toil Desirable and Probable.—A full study of the effects of technical progress will show that there is never a reduction of the general field for employment in consequence of it. There is an increase of pay, and this causes a certain unwillingness to work for as many hours as men formerly worked; and there is also a change in the nature of the operations that labor performs, which tends in the direction of more comfort and less painful toil. For the famous statement of J. S. Mill that "It is questionable if all the mechanical inventions yet made have lightened the day's toil of any human being" we may safely substitute, "It is the natural tendency of useful inventions to lighten the toil of workers and to give them, withal, a greater reward for their work." Mechanical progress is the largest single ground for hope for the future of laboring humanity, and by its effects, direct and indirect, it has already insured a great alleviation of toil, with an increase in its rewards. It has helped to counteract the world crowding that for a century has gone on and the diminishing returns from agriculture which the crowding entails. Inventions may make disturbances, and their better effects may be temporarily and locally counteracted; but a society where competition rules is sure to secure the benefits in the end and does, in fact, secure them in greater and greater measure as the years go by. Such are some of the theses which research will justify.

Facts concerning Disturbances incidental to Progress.—We have first to take account of the disturbances. They are prominent in economic discussion and constitute the subject of one of the grave indictments brought against the system of competitive industry. They have actually caused great hardships in the past, as skilled handicraftsmen have seen machines come into use which, for rapidity and accuracy of work, excel the best results that long apprenticeships formerly gave. Now that machinery has possession of most of the field, there is no longer the former opportunity for displacing hand workers; but the remainder of hardships incidental to progress is not to be overlooked. This part of the dynamic movement involves present local sacrifices for the sake of future general gains. Here, therefore, there are developed antagonisms of interest which may hinder progress and, if they were extensive enough, might conceivably throw a doubt over the future of the working class. While there is no great disposition to question the ultimate benefit which mechanical progress insures, there is some uncertainty as to the process by which this benefit is extended to workers and there is a struggle to avoid the immediate cost. There is, in some quarters, a disposition to rate the cost so highly as to draw the inference that we need to adopt a socialistic plan of living for the sake of enabling workers to avoid the hardships and secure the benefits of "labor saving." It will appear, however, if we grasp the essential facts of what we may call the dynamics of method, that the tendency of it is to reduce the burdens which progress entails, and to diffuse a large share of the benefits of it among the working class. It will further appear that the socialistic plan of organizing industry would at least throw a doubt over the progress itself. Nothing, on the whole, puts the future of industry conducted on the competitive plan in a more optimistic light than the fact of the progress in productive methods which it insures. It is the strongest guaranty of a "good time coming," in which all humanity will rejoice when it comes and should rejoice by anticipation.

The Law that insures the Survival of Beneficial Processes Only.—It is self-evident that wherever there is a saving of labor needed to make a given amount and kind of product, there is an increase in the possible product that is created by the aid of a given amount of labor. If workers themselves get a share of the gains, this fact will show itself through that beneficent shortening of the working day to which we have alluded. The men will be unwilling to stand the weariness and the confinement of working through too many hours and will be inclined to take more holidays and vacations; all of which, when it comes about in a natural way, is an indication that the industrial organism as a whole has put its hand on a new and powerful lever and is enriching its members by means of it. It does, however, have to change the character of its work, and this means that some labor has to be transferred from one subgroup to another. The laborer displaced by an invention at a particular point continues to be wanted somewhere. When he and others have found their new employments, the good result appears,—the increase and improvement of goods produced,—and society as a whole then gets the benefit which would come to an isolated worker who, without remitting his labor, finds his appliances growing better and the fruits of his labor growing larger. The collective body gets a greater income than before, and the workers share in the gain.

Importance of the New Forms which the Social Income Takes.—This increasing income takes the form in which society now requires it, and it is this which brings about the readjustment of labor—or the changes in the amounts of labor used in particular subgroups—which have caused hardship in the past.

Nature of the Incidental Evils to be Dreaded.—The problem we have to face is a danger that labor may be displaced either (1) from the particular point within a productive establishment at which it is now working, or (2) from the productive establishment as a whole, or (3) from a subgroup, or (4) from the general group of which the subgroup is a part. Out of industrial society in its entirety it cannot thus be forced. There is a case in which the men whose crafts are supplanted by machines may all stay where they are and operate the machines; but that involves forcing other men to change their occupations. There are more cases in which these men may stay in the mill or shop that employs them, but not in the same department of it. There are still more cases in which they may stay in their original subgroups, and in a majority of cases they may stay in their general groups. In every instance there are places for them in the working society.

Local Expulsions of Labor.—When a single employer who is one of many competitors in an industry adopts an important labor-saving device, it may be possible for him to keep all his men employed and to let the improvement show itself wholly as a means of increasing the output. He may secure a machine which will do what twenty men formerly did. If it were possible to cut the uppers of a dozen shoes by the quick stroke of a single die, the machine that carried this armature would do the work of perhaps twelve knives handled by that number of skillful workmen. If the original number of men were retained in the cutting department, and if each of them were furnished with the new appliance, it would mean that twelve times as many uppers would be cut as were cut before the change was made. There would, of course, be no use in trying to do so much cutting of uppers for shoes, without doing twelve times as much sewing, welting, making soles and heels, etc., and to secure all this at once would require a twelve-fold enlargement of the manufacturer's plant. This is too much to secure at once. The manufacturer might perhaps double the output of his mill and nearly double the number of his employees, but that would require only two of the twelve cutters he formerly had. The new workers would be in parts of the mill other than the one where the great saving of labor was effected. Ten men would be removed from the cutting department, and the two left there would cut, by the aid of the new machines, twice as many uppers as the whole number cut before, and that would require the furnishing of a double number of all other parts of the shoes and a double working force to make them. The ten men liberated from the cutting department would be available for this purpose, and new ones would be brought in and set sewing, pegging, lasting, welting, etc. Within a single establishment, therefore, a radical saving of labor at one point usually involves some shifting of labor from that point to others, though it may increase the total number employed in the establishment which secures the economical device.

The Effect on a Subgroup of an Improvement by One Entrepreneur.—If an employer who has this experience is one of a hundred in the shoemaking industry and the only one who secures the cutting machine, the market will receive as large an increase of the product as would be involved by multiplying the output of his mill by two, without requiring that the price should be more than slightly reduced. An improvement which is monopolized for a time by a single entrepreneur seldom renders it necessary to reduce the aggregate of the labor in his employment. Far more often it makes it for his interest to increase the number and to put new labor in every part of the plant where no improvement in method has been made. It is often the fact, however, that labor has to abandon other establishments in this subgroup, and enough of it may do so to cause the amount in the entire subgroup to become somewhat smaller by reason of an improvement. In the case of a single employer there is a bare possibility that no one should be moved, in consequence of an economical invention, even from one part of the mill to another. The manufacturer of our illustration might even keep his twelve cutters at work after the introduction of the machines referred to and do twelve times as much cutting, provided that he could quickly increase his output of finished shoes to twelvefold its former amount. There are practical reasons why he could almost never do this; but if he actually did it, he might, by some reduction in the price of shoes, find a market for this increased product. If the reduction of price were great, some competitors would probably go at once out of the business; but it is never the policy of a successful producer to make unnecessary haste in reducing prices, and, as a rule, the reduction is gradual. The increase of product from the very efficient mill must cause a certain reduction in the rate at which it sells its goods, and this is apt to force manufacturers who are particularly ill equipped and cannot keep pace with the rate of improvement which their enterprising competitor establishes to go out of business. They thus relieve the market of so much of the product as they have contributed and make a place for the increased output of the newly equipped mill. In such a case the total output from the subgroup is not very greatly increased, and the price of the product does not need to be greatly reduced.

Standard Prices fixed by Cost in the most Economical Establishment.—It is a vitally important fact, as we shall soon see, that the price of an article is, in a dynamic society, always tending toward the cost of making it, not in the most inefficient establishment, where it is produced "at the greatest disadvantage," but in the most efficient one of all. The ultimate effect of any great improvement is naturally to close the shops of all employers who do not adopt it or get an equivalent advantage of some kind. Ultimately the whole subgroup will be in the state of efficiency it would have reached if the improvement had been adopted by every entrepreneur on its first appearance.

The Effect of an Improvement in Production which is quickly adopted by a Whole Subgroup.—When an improvement is immediately adopted, not by one employer merely, but by all employers in a subgroup, it is likely to cause a quicker displacement of labor from the subgroup as a whole. A very economical machine introduced by its inventor or manufacturer and quickly adopted by all employers at A'' would nearly always force a certain number of laborers to leave that industry and find employment elsewhere, if it were not for one commercial fact, namely, the reduction in the price of the product and the consequent enlargement of the demand for it.

How Labor may be displaced from a General Group.—The amount of A' that can be created depends on the amount of A that can be furnished as material to be transformed into A', and also on the amount of A' that will be taken for conversion into A''. This again depends on the amount of A'' that will be accepted by employers at A''' and sold in this last form to the consuming public. If the market for A''' cannot be much increased by a moderate reduction of the price of it, some labor may have to go into the group of B's or C's; and in any case there must be new labor in A, A'', and A''' if the product of A' is increased. We can now measure the difference between the effect of the adoption of an improvement first by one employer and much later by others, and that of the quick adoption of it by all. In this latter case there is not much delay in increasing the output of the goods, and the market for them does not have time to grow larger because of the growth in the numbers and the wealth of the community. Unless the present market will take an enlarged quantity of the finished goods without requiring that the price should go below the new cost of making them, some labor will have to leave the general group.

How Patents may Cause an Increased Displacement of Laborers.—What we often see is the nearly simultaneous adoption of a labor-saving device by all leading employers in one industry. Something like this takes place when the makers of a valuable machine retain the patent on it in their own hands, and press the sale of it on all the producers who have use for it. In this case, however, the makers usually put the price of the machine at a figure that, while it affords an inducement to buy it, does not reduce the cost of the goods that it helps to make enough to cause a great increase in the demand for them. The owners of the patent on the new appliance charge for it "what the traffic will bear"; and until the patent runs out, the users of the machine have to sell their goods almost at as high prices as before. If the machine enables one man to do the work of a dozen, eleven men must find other things to do. They could find them in their own industry if the product of it were enlarged in consequence of the use of the machine; but if the high price of the patented machine prevents this, they must go elsewhere. When the patent runs out, there is likely to be a considerable enlargement of the industry, and how important this fact is we shall soon see.

How Improvements which call Labor to a Particular Establishment may displace Labor from a Group.—Another typical case is afforded when some one employer has for a time the exclusive use of a labor-saving device, and pushes his production to the utmost in order to get the full benefit from it. Here are seen the more characteristic effects of such an improvement. It draws labor to the employer who for the time being monopolizes the new instrument of production, but it turns labor from the subgroup of which this employer is a member. He enlarges his output and in time this reduces the price of the product. In the field there are marginal mills, or those so antiquated, ill situated, or badly run that, with their product selling at the former price, they could barely hold their own; and now that the price is reduced, they lose money by running. They have to cease operating, and this makes practicable a further enlargement of the product of the efficient mill. Much labor goes thither, but some part of that which leaves the abandoned mills betakes itself to other subgroups. Not often, indeed, does it have to go to other general groups. The cheap transformation of the material A into A' enlarges the market for A' and calls for more labor at A, and it involves more at A'' and A'''. If the change of method had been gradual, the growth of the social demand for A''' would probably have precluded the need of sending any labor out of the entire group of A's. Even a rapid change often sends labor out of one subgroup into other subgroups of that series rather than into other general groups.

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