Advantage of Diversity of Wants.—One very marked effect of the diversification of wants is to increase the aggregate utility of a mass of commodity produced with a given expenditure of labor. Measure the whole wealth available for consumption on the basis of the labor that it takes to create it, and it will appear that it has more utility and is worth more to society in consequence of this evolution that is going on in the nature of the individual consumer. Agiven amount of labor benefits most the men whose wants are of the most varied character. IfA,B, andCare three commodities, and if their several utilities decline, as successive units of them are given to a consumer, along the curves descending from the lettersA,B, andCof the diagram, it is clear that the man whose consumption is confined to the commodity A gets less benefit from three units of wealth than does the man who consumesA,B, andC. The utility of the first unit ofAis measured by the vertical line fromAto the lineDE, that of the second by the line fromA´toDE, and that of the third by the line fromA´´toDE. The utility of the first unit ofBis measured by the distance fromBto the lineDEand exceeds that of the second unit ofAby the difference between the lengths of those lines. In like manner the utility ofCexceeds that of the third unit ofAby the difference between the length of the line descending from C and that of the one descending fromA´´. The declining utility of the income of the man who satisfies three wants is represented by the slowly descending curveABC, while the diminishing utility of the income of the man who satisfies only one want declines along the sharply descending curveA,A´,A´´.[1]
Changes in Static Standards.—The grand resultant of all the changes that are going on in the more highly civilized countries is a continual rise, not only in actual wages but in the theoretical standard of wages. The static or "natural" rate of pay for labor to-day is higher than it was fifty years ago and lower than it will naturally be fifty years hence. Removing all disturbing influences and letting society settle to-day into a perfectly static condition would reveal the theoretical standard of present wages. Doing the same thing after a lapse of fifty years would show what would then be the natural or standard rate; and this would be higher than the present one. Not only would the actual pay of labor have risen, but the standard to which it tends to conform would have become higher after every interval. The actual rate of wages at any one time varies from the standard; but as both rise from decade to decade, the actual rate hovers all the while within a certain distance of the standard one.
Effects on Values.—In the same way the values of goods measured in labor will in general be declining values. At no one time will actual market prices accurately express the amounts of marginal labor that are required for producing different articles, but they will approximately express this. Articles will sell in the market for about enough to pay for the labor that, when used as marginal labor, suffices to produce them; and as this amount of labor put into a given article grows less and less, the prices of the goods will actually pay for fewer and fewer days' labor.The standard price of anything will be the amount of money that is needed to pay for the labor of making it, provided always that we are careful to use only empty-handed labor in applying the test and that we put that labor in the marginal position, as described in Chapters IV and V, and so disentangle the product that is attributable to it from that which is imputable to capital. If wages, as paid in money, remain stationary, normal prices will decline and actual prices will hover about them in their downward course, so that goods will actually buy smaller and smaller amounts of labor, or, what is the same thing, labor will secure as its pay more and more goods.[2]
FOOTNOTES[1]For studies of the effect of diversified wants, see S. N. Patten, "Consumption of Wealth." It will be seen that account must be taken first of the natural expansion of the want which comes from an increase of productive power, and second of the changes in the quality of the wants to be gratified, which sometimes go ahead of any change in the productive system and call for new kinds of commodities.[2]In measuring the cost of goods in labor, in Chapters IV and V, we disentangled from the amount of goods which is the joint product of labor and capital, the part which is attributable to labor only. The mode of doing this is there more fully stated. The old and crude method of using a labor standard of value—which assumes that the product of a unit of laboraided by capitalwill always buy the product of another unit of laboraided by capital—we must takeall painsto avoid.In connection with the cost in labor of different articles it is to be remembered that in agriculture the effect of improvements of method may not always suffice to counteract the working of the so-called law of diminishing returns, which insures, with agricultural science in a given state of advancement, smaller products per capita when there are more men on a given area. That this influence should preponderate over that of improved processes requires that population should increase with a degree of rapidity which may or may not be maintained.
[1]For studies of the effect of diversified wants, see S. N. Patten, "Consumption of Wealth." It will be seen that account must be taken first of the natural expansion of the want which comes from an increase of productive power, and second of the changes in the quality of the wants to be gratified, which sometimes go ahead of any change in the productive system and call for new kinds of commodities.[2]In measuring the cost of goods in labor, in Chapters IV and V, we disentangled from the amount of goods which is the joint product of labor and capital, the part which is attributable to labor only. The mode of doing this is there more fully stated. The old and crude method of using a labor standard of value—which assumes that the product of a unit of laboraided by capitalwill always buy the product of another unit of laboraided by capital—we must takeall painsto avoid.In connection with the cost in labor of different articles it is to be remembered that in agriculture the effect of improvements of method may not always suffice to counteract the working of the so-called law of diminishing returns, which insures, with agricultural science in a given state of advancement, smaller products per capita when there are more men on a given area. That this influence should preponderate over that of improved processes requires that population should increase with a degree of rapidity which may or may not be maintained.
[1]For studies of the effect of diversified wants, see S. N. Patten, "Consumption of Wealth." It will be seen that account must be taken first of the natural expansion of the want which comes from an increase of productive power, and second of the changes in the quality of the wants to be gratified, which sometimes go ahead of any change in the productive system and call for new kinds of commodities.
[2]In measuring the cost of goods in labor, in Chapters IV and V, we disentangled from the amount of goods which is the joint product of labor and capital, the part which is attributable to labor only. The mode of doing this is there more fully stated. The old and crude method of using a labor standard of value—which assumes that the product of a unit of laboraided by capitalwill always buy the product of another unit of laboraided by capital—we must takeall painsto avoid.
In connection with the cost in labor of different articles it is to be remembered that in agriculture the effect of improvements of method may not always suffice to counteract the working of the so-called law of diminishing returns, which insures, with agricultural science in a given state of advancement, smaller products per capita when there are more men on a given area. That this influence should preponderate over that of improved processes requires that population should increase with a degree of rapidity which may or may not be maintained.
When we try to establish a standard to which wages generally tend to conform, the question arises how much of the earth we have in view. Is there a rate at which the pay of labor in Europe, Asia, Africa, Australia, and America tends to settle and remain? Is there a common rate of interest that is normal in all these grand divisions, and are there also general standards of value for goods which govern their prices in all the markets of the world? If there are no such standards having universal validity, are there any that are valid within single geographical divisions? On what principle can we divide the earth into sections for economic purposes? These are some of the questions which must be answered if a theory of distribution is to have any definiteness of meaning, and they arise whenever we try to establish a static standard of any kind. If we talk about natural wages, we must know in how much of the world they are natural. The questions become even more urgent when we try to solve dynamic problems. We shall have to determine the effects of an influx of labor into the economic society we are studying; but does this mean an increase of population in the world as a whole? Does an influx of capital have a similar comprehensive meaning, and does an improvement in the method of producing some commodity mean a change in themode of making it in every part of the world where it is produced at all? We need to know how extensive the society is whose activities we are examining.
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 forA´´´Min 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 tothe 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 groupAto the groupB.
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 likewater, 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]
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 actsomewhat 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 Europeanways 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 commerceand 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 timewhen 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]
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 realizedwhen in view of the comparative density of population in the different regions which now existsoccupations are naturally apportioned.
The base lineADof 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.ABrepresentsthe smallest population per unit of land of a given quality within the central area, andDCrepresents the largest, while the ascending lineBCshows 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 pointDit is at its greatest. At the pointAa man can get much out of the soil as the return for his own bare labor, while atDhe can get comparatively little; and at intervening points on the base a man gets more than he does atDand less than he does atA. 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 pointDis 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]
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 undulycongest a sterile agricultural region can be well maintained on a fertile one. In the accompanying figure the lineADinclosed 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 lineBCrepresents the varying density of the population in different parts of the broad area we regard as general economic society, the dotted lineEFmay be taken as expressing the increase in the part of the labor and capital of the country devoted to manufacturing as population becomes denser,AEmeasures the proportionate number of persons engaged in manufacturing in the region of sparsest population, andDFmeasures the comparative number in the region most densely peopled.
AGandDHrepresent the numbers engaged in agriculture in the two regions, and the descent of the lineGHrepresents 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 fundof capital devoted to cultivating the soil; while the upward trend ofEFmeans 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.
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 productsthese 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 thepopulation 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 rurallands, 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]
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 strictlypermanent, 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]
FOOTNOTES[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.[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.[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.[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.[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.[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 coördinations 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.
[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.[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.[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.[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.[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.[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 coördinations 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.
[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.
[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.
[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.
[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.
[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.
[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 coördinations 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 betweenthe 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 ofA´´´than it can procure by makingAand exchanging it abroad forA´´´, the manufacture ofA´´´is legitimate and profitable, but when the unit of labor can procure more ofA´´´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 makeAand buyA´´´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. WesternEurope, 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 iscompetition 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 theexporting 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 calledHH´´´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 tobe 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 toentrepreneursand 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 weconfine 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 thesubgroups which in our table we have calledA,B, andCtowardA´´´,B´´´, andC´´´. 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, withinthat 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 totake 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.