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The Law Of Population
The Limits Of An Economic Society
Perpetual Change Of The Social Structure
Value And Its Relation To Different Incomes
The Law Of Accumulation Of Capital
Effects Of Dynamic Influences Within The Limited Economic Society
Organization Of Labor
Boycotts And The Limiting Of Products

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Production A Synthesis Distribution An Analysis
Leading Facts Concerning Money
The Foregoing Principles Applied To The Railroad Problem
The Measure Of Consumers' Wealth
Capital As Affected By Changes Of Method
Conditions Insuring Progress In Method And Organization
Land And Artificial Instruments
Further Influences Which Reduce The Hardships Entailed By Dynamic Changes
Summary Of Conclusions
The Socialization Of Industry

Effects Of Dynamic Influences Within The Limited Economic Society

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

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

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

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

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

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

What is involved in a Full Study of the Relative Density of

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

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

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

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.

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Previous: The Limits Of An Economic Society

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