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Further Influences Which Reduce The Hardships Entailed By Dynamic Changes
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The Socialization Of Industry

Further Influences Which Reduce The Hardships Entailed By Dynamic Changes

In the absence of an unusually great increase in the consumption of an
article the improvement which reduces the cost of it tends to displace
labor. The first thing that will occur to any one who looks for
influences which mitigate this evil is the fact that economical
changes are going on at nearly all points in the system, and that this
cancels out most of the displacing influence. If something sends men
from the group A to groups B and C, while something else sends
them from the group B to groups A and C, and still another
influence impels men from C to A and B, there is likely to be
very little actual moving. A question will in such a case arise as to
whether the three movements may not expel labor from all the groups
and remand them to a state of idleness. History is clear in the answer
it gives to this question; such a result has not occurred, and at the
end of a century of brilliant mechanical progress the amount of
enforced idleness is not greater than it was at the outset. It remains
to show that economic law precludes a universal displacement and
insures laborers for all time against being at the mercy of an
industrial system which has nowhere any need of their services.
Productive devices widely introduced mean great and general gains and
comparatively little cost. They mean what on their face they ought to
mean, more comforts and less toil for everybody. Before studying this
influence--the reciprocal action of improvements scattered through the
general economic system--we have to determine the action of one or two
other influences which also lessen the disturbances which progress

One can see that the quick adoption of an economical device in every
shop of a subgroup, at a time when all other industries are in a
stationary state, would usually expel some labor from that one. If
consumers should, on a large scale, substitute the product of this
subgroup for that of others, it might save the situation; but the
general fact is that the consumption of the cheapened product must
increase in a ratio that is greater than the ratio representing the
saving of labor used in making it, in order to prevent displacement of
labor. If we get on with two thirds of the labor which the making of
the commodity out of raw materials formerly required, we do not save
two thirds of the total expense of making the finished article; and
yet to retain all the labor that is now in the business we must sell
one and a half times the former number of the goods produced.[1]

[1] The mathematical problem stands thus: If all the
subgroups of the A series have the same amounts of labor
and a machine enables a half of the force now in A'' to do
all that is required in transmuting the usual supply of A'
into the usual amount of A'', then some of the labor in
A'' would in most cases betake itself to entirely different
industries. The superfluous labor at A'' would amount to an
eighth of all the labor required for the complete creation of
A'''. If wages constituted the only cost which the
entrepreneur must defray, the price of A''' would be
reduced to seven eighths of the former price, and this might,
in the case of some goods, enlarge the demand to eight
sevenths of its former amount and so keep all the labor in
the general group. Since there are outlays to be met besides
wages, this reducing of wages by an eighth would not usually
reduce total cost by more than about a twelfth, and even if
price quickly went down to eleven twelfths of its former
amount, it would be too much to expect that the consumption
of the A''' should increase by a seventh, except in cases
in which this amount of reduction of price caused A''' to
take the place of B''', C''', etc., in the purchase lists
of many consumers. The enlargement of consumption would have
to take place in a ratio greater than that which represents
the saving in cost. Costing eleven twelfths as much as
before, the article must sell eight sevenths as freely--which
is possible only when it thrusts itself extensively into the
place of other consumers' goods. Even then some labor would
have to move from A'' to other subgroups of the series. One
half of the amount of labor formerly at A'' does the whole
work formerly done there, and to keep it all at work at that
point would require that the output from the whole group be
doubled. Saving one twelfth in cost could not well insure
selling double the amount of goods. In this view improvements
would have a threatening look, though their ultimate effect
would still appear as beneficial as ever, were it not for the
fact that the disturbances that result from them are made to
be relatively small by the influences we are studying.

Counteracting Influences

The importance of a gradual introduction
of an improvement rather than a rapid one lies in the fact that it
permits these influences to do their work and often to render the
actual moving of laborers even from their subgroup unnecessary. Time
is the salvation of the laborer menaced by an impending displacement
from his field. When we see what is the grand resultant of all the
dynamic influences we are studying, we shall see how this neutralizing
and canceling of the labor-expelling force takes place. But for them
one isolated change would tend to expel labor from its subgroup and
would nearly always send it away from the point within an
establishment where the new device is introduced. It usually attracts
labor to this establishment and away from the inefficient or marginal
ones. A gradual adoption of the improvement allows time not only for a
general increase in the size and the wealth of the community, but for
other influences which act more quickly and in practice make it nearly
always unnecessary to reduce the total amount of labor in an industry
which produces an article in permanent demand. Statistics may be
confidently appealed to in support of this general statement.

The Dynamic Law of Price and its Effects

We briefly noted in
passing that the price of a product the making of which is subject to
repeated improvements naturally tends toward the cost of it in the
establishment having the latest method and the greatest facilities for
production. The natural price at any time is the cost of that part of
the supply which is created at the greatest advantage, and not the
cost of the part produced at the greatest disadvantage, as an old
formula expressed it. It is the mill that makes the goods most cheaply
which is enlarging its product and bringing the price down toward its
level of cost; as soon as other establishments get possession of the
improvement they help forward the process, and as they get still
better appliances they help in carrying the price to still newer and
lower standards.

The Cause of the Coincidence of Maximum Cost and Price

At any one
moment, it is true, there are ill-located, ill-equipped, or
ill-managed mills that are making nothing and are likely soon to be
abandoned. They are the marginal mills we have spoken of, and the
goods that they make cost all that purchasers will give for them. This
insures a coincidence of the price of the goods with the cost of
making them in such a mill, but this is merely an incident in the
process of eliminating the inefficient establishments from the field.
In the mill which happens at this date to be the one about to be
crowded out the cost of the goods equals the selling price of them and
will exceed it as soon as the price goes to a lower point. This cost
happens transiently to coincide with the price, but does not
regulate it. It is the outlay that the best mill incurs that does
that, since it sets the standard toward which the price is made to


The figure represents a subgroup in which five producers,
a, b, c, d, and e, are operating. Later, a new
establishment f, is introduced. The upper dark line
represents the price of a unit of the product, and the lower
dark line the cost of making a unit in the establishment
which is for the time the most efficient.

The dotted lines represent the respective costs of production
in the different mills, ranging from a, the most efficient,
to e, which can barely hold its own. What the figure
represents as happening is as follows:--

b first makes an improvement which lowers his cost of
production, as shown by the descending dotted line. This
enables him to increase his output, and so has its effect on
the price, which descends. Now, producer e was already
selling goods at cost, but he is not at once driven out of
the business. Instead, even though he cannot earn full
interest on the original cost of his fixed establishment, he
will continue to run as long as he can make his plant earn
anything at all. The result is a virtual reduction of the
capitalized value of the plant (the interest on which is an
item of cost), and this is what is represented by the descent
of the dotted line which represents e's cost of production.
The situation is now represented by the series of
points,--b', a', c', etc., representing at their
second stage the differing levels of cost in the case of
different producers.

The next thing that happens is an improvement made by a,
causing his cost of production to fall below that of b.
The resulting fall in price now finally drives e out of
business; he can no longer earn anything at all on his fixed
plant. We may assume that producers a, b, and c, who
have been making profits, have enlarged their productive
capacity enough to supply the market fully without e's
contribution. d is now in the same position in which e
was at the preceding stage,--earning nothing on his fixed
establishment and barely induced to remain in the business.

The next occurrence represented is the opening of a new,
large, and very efficient mill by f. The effect is like
that of improvements, but more violent. The fall in price
drives both d and c out of business. b is now on the
margin, but saves himself from loss by a second improvement,
which makes him again the most efficient producer. And so the
process goes on ad infinitum.

This figure illustrates the fact that, while at any time the
price of a good roughly equals the cost of it to the least
efficient producers, still this cost does not govern the
price. The ruling factor is the cost in the most efficient
mill, toward which the price tends; and all that the cost in
the least efficient mill determines is how long that mill
shall continue running.

In order that the claim here made--that price equals cost in
the establishment which is about to be crowded out of the
field--may hold good it is necessary to define terms with
some care. In a typical case an employer who is destined soon
to close out his business has, perhaps, an antiquated mill,
which itself pays nothing, but enables its owner to use
circulating capital and labor in a way that affords interest
on that capital and wages for the labor. No interest on the
cost of the antiquated mill is chargeable to the business
unless the site and the building can be sold for a new
purpose. If they have completely lost all productive power,
they are not, as we use terms, capital goods at all; and in
that case the only interest which the entrepreneur should
reckon as a cost is that which accrues on other capital used
in connection with the worthless mill. If the site and the
building have some value for another purpose, and if the
machinery has some value as junk, then whatever the owner can
get by disposing of the plant constitutes a sum the interest
on which constitutes a cost of producing goods in this mill.
It is a sum which the plant owner foregoes as long as he
refrains from selling the plant. He can afford to use it in
production as long as the price of the product covers the
cost as thus defined, but must stop when it ceases to do so.

The Importance of Delay in the Closing of Marginal

Now, this process looks as if, by the closing of
mills that are distanced in the race of improvement, labor must be
forced out of the subgroup. So it would be if the reducing of the
price to its new static level were an instantaneous operation and the
inferior mills were, in the same instantaneous fashion, compelled to
close their doors. These, however, are gradual operations, and before
they can possibly produce their full effects, influences will have
been set working which will counteract the expelling tendency. We have
cited as such an influence the general growth of society in numbers,
wealth, and consuming power, making it possible for a group, when an
economical change has taken place, to produce and sell more goods than
before and to keep its accustomed force of labor in order to do so.
There are certain more specific influences which have a similar effect
and render it as unnecessary as it is useless to attempt to resist the
course of improvement.

Centralization of Business an Effect of Progress

From the facts
here cited it appears that conservatism of the kind that resists all
changes condemns an entrepreneur to destruction. He must keep in a
moving procession in order to survive. As the essential thing which is
changing is the price-making cost of goods, the entrepreneur must
see to it that in his establishment cost declines. While this does not
necessarily mean that every such establishment needs forever to grow
larger, since there are local conditions in which relatively small
shops may be economical enough to survive, yet those which cater to
the general market and directly encounter the competition of the great
producing establishments must, as a general rule, have the advantages
of great size in their favor, or sooner or later be crowded out of the
field. Many of the smaller ones fall by the wayside, and the business
they have done passes to their already large rivals. Wherein the
advantages of the great shop lie and how one that is of less than a
maximum size may survive in spite of them, are points for later

How Displaced Labor is Replaced

When men are actually forced to
leave an industry,--say the subgroup A',--they find themselves, in
the search for employment, in the same position as a body of newly
arrived immigrants in quest of work. Men of either class must offer
themselves at a rate that will induce employers to take them. If much
new capital has lately been created, it is naturally possible for the
men to get employment without having to overcome serious friction or
to reduce their demands in the way of pay. In the absence of such
additions to the capital, they might possibly have to offer some
inducement to employers, in order to overcome their reluctance to make
changes in their shops. We shall see in due time, however, that where
improvements are well distributed through the industrial society and
have their natural effect, they tend to increase the general demand
for labor at the original rate of pay.

Effects of a Series of Improvements confined to One Industry
contrasted with those of Improvements diffused through the Groups

continuous series of radical improvements, all originating at one
point, would tend of themselves to cause a series of expulsions of
labor from that point, and the mere increase of population and wealth
might not so fully counteract this tendency as to prevent a positive
exodus of labor from the occupation affected. A merely relative
reduction of labor in this occupation would not cause much hardship,
since it would only mean that other industries were attracting the
greater number of young laborers entering the field and gradually
getting a larger and larger part of the whole working population. If
men actually in A' can stay there, no one is injured; but too great
a concentration of improvements at this point might drive some of them
away. Such concentration is the opposite of the general rule.
Improvements do not confine themselves to one point or to a few
points, but originate at very many, and this fact neutralizes their
labor-expelling tendency and might reduce it practically to nil. If
labor could be made more efficient in every group of the whole system,
the result would be to increase the quantity of every kind of goods.
Making more of one's own product is acquiring power to buy more of the
products of others; and enlarging the general output of goods tends
thus to increase the demand for all kinds of goods as well as the
supply. If you make clothes and I provide food, and we exchange
products, but do not satisfy each other's wants to the point of
repletion, it is well for both of us that you should become able to
make more clothes and I to furnish more food. We can then go on with
our original occupations and both live better. In this there is
involved no displacement of labor at all; and neither would there need
to be any disturbance caused by multiplying in well-adjusted
proportions the output of each group and subgroup in the system of
industry. Where formerly a unit of A''' was exchanged for one of
B''' or C''', there are now two units of A''' given for two of
either B''' or C''', and every one has more things to consume than
he formerly had.[3]

[3] It will be seen that the maintenance of the present
exchange ratios between A''', B''', C''', etc., when
costs of all of them are reducing, would require that these
costs be reduced in exactly the same degree in each case, and
that the quantities sold at the new cost prices should be
increased in unequal degrees, so as to bring the different
prices to cost levels. The demand for one article is more
elastic than is the demand for another. A slight increase in
the supply of A''' may cause a large reduction of the
selling price, while it may require a great addition to the
supply of B''' to produce this effect. There must,
therefore, be some changes in the relative quantities of
labor in the different subgroups, even though there has
been an equal amount of "labor saving" or cost reducing in
all of them. This change is so slight in amount as compared
with what would be caused by improvements confined to one
subgroup, that it is effected with relatively little hardship
and mainly by disposing the constant inflow of new labor at
the points where it is needed.

Labor attracted toward a Subgroup as a Result of Improvements which
are made Elsewhere

The fact that the demand of consumers for
different goods is not uniformly elastic has to be taken into account.
There are two distinct kinds of movements in the group system, brought
about by improvements in method. Each improvement in and of itself
has, as a rule, a labor-expelling effect, but this effect is partly
neutralized by general growth in consumption and still more by
improvements occurring elsewhere. Labor that is thrown out of the A
group would naturally go to group B, C, etc.; but if, as we have
just seen, similar influences tend to expel labor from the B group
and the C group, the labor may, for the most part, stay where it is,
with the result that more of A''', B''', and C''' is offered to
consumers. The increased output of one group is itself a means of
retaining labor in other groups, even though, thanks to mere methods,
that involves making more of every other kind of commodity.

The Supply of One Kind of Goods Equivalent to a Demand for

There should be no difficulty in interpreting, in this
connection, the traditional statement that "the supply of one kind of
goods constitutes a demand for another." An increment of A''' and
one of B''' coming into existence together supply wants common to
their two sets of producers and both groups can gain by exchanging
such portions of their respective products as they do not retain for
their own use. If A''' and B''' were the only consumers' goods
used, a part of the excess of each would be distributed among the
members of the group producing it, and the remainder would be given in
exchange for some of the other kind of goods, also for distribution
among the members of the first-named group. This is what actually
happens when a multitude of articles for consumption are produced in
increasing quantities.

Effect of an Increase of Individual Incomes on the Character of Goods

Such an increase of the productive power of a group means,
of course, an increase of individual incomes, and it causes men, as we
have seen, to consume better things rather than more of them. There is
a certain merely quantitative enlargement of every one's consumption
of goods of a given kind, every one using more of A''' than he used
before; but the greatest change shows itself in the quality of what he
uses. Every man buys and consumes better articles of the A''' kind,
as well as of other kinds. His food, his clothing, etc., are all
prepared in a more elaborate way, and he has more of what we call form
utility which results from the fashioning of things, and relatively
less of the elementary utility which inheres in the raw material.
There is somewhat more of raw material and very much more form utility
in the goods he demands for personal consumption. This requires that
labor should move upward in the group system, and that more of it than
before should betake itself to those subgroups where the fashioning of
the raw material is done and where the finishing touches are applied
to goods. The effect of the constant improvement of all processes of
production, therefore, so far as the effect on labor is concerned, is
akin to the effect of an addition to capital, in that it moves labor
upward in the subgroup series. It puts more labor into mills and shops
which make articles of comfort and luxury.

The Nature of the Movements actually caused by Improvements

upward movement cannot go on as smoothly and with as little
disturbance as that which is caused by the increase of capital.
Whenever a greater gain is made at one point than is made at another,
an influence is set working which, of itself, tends to send labor from
the one point to the other. The slowness with which the change of
method proceeds affords the time that is necessary for the protection
of labor in the first-named group, since little movement takes place
before the effects of improvements made in the second group begin to
be felt. If in 1906 an improvement is made which, in the course of
five years, would cause some labor to move from the subgroup A''' to
the subgroup B''', and in 1907 a corresponding improvement is made
in the latter industry, the equilibrium is restored before enough
disturbance has taken place to require any absolute reduction of labor
in A'''. The facts are (1) that new laborers as they enter the field
are drawn more to the upper subgroups than to the lower ones,--to the
A''' and the B''' rather than to the A and the B of the two
series,--and that in moving upward they are drawn at first more
strongly toward B''' and later more strongly toward A'''. This is
the nearly constant fact in industry and is the grand resultant of all
the forces we have described--an upward flow that is continuous but
does not follow strictly vertical lines. As young men--the sons of
workers in A, B, C, and D, who might otherwise have remained
in their fathers' occupation--move to the subgroups that stand higher
in the several series, they first go in larger number toward B'''
than toward A''', and later in larger number toward A'''. There is
a wavy movement toward the right and then toward the left in the
steady flow of labor from the groups that create the raw material to
those that impart to these materials the form utilities which they
need to fit them for service. An actual lessening of the number of
workers in an entire group in consequence of an improvement in the
method of production is practically unknown, and even a positive
lessening of the number in a subgroup is exceedingly rare.

Apparent Exceptions to the Rule

Exceptions to this rule which are
rather apparent than real will occur to every one. The discovery of a
great supply of mineral oil put an end to the use of whale oil for
illuminating purposes, though it allowed the whale fishery to survive
on a reduced scale and produce oil for other purposes, in so far as
the rawest material, the whales themselves, were not exterminated. The
exhaustion of a supply of raw material was here a dominant fact, and
the effects it produced may be again expected when mineral oil shall,
in turn, become scarce. Men will move out of the subgroup producing
the crude oil, as nature forces them to do so, but their movement
cannot be referred merely to improvement in the mode of extracting the
oil or transporting and refining it. The fact which illustrates the
rule we have stated is that while mineral oil drove whale oil out of
the field as an illuminant, this did not reduce the number of men in
the general group which produces illuminating oil. More men were set
working in the oil fields than ceased working on the whaling ships. A
new raw material was used in creating a similar finished product, and
as the general industry which made this product grew larger rather
than smaller, the total demand for labor in oil production was not
lessened. This does not prove that old sailors did not suffer from the
change. Young sailors could go to the oil fields or elsewhere, but men
who were not adaptable could not do so, and the hardship thus
entailed is not to be overlooked. We are, however, forming a judgment
of movements which pervade a vast industrial system, and we need most
to know what is their grand resultant. If that were a general
displacement of labor, causing increasing idleness and suffering, the
system that involved this result would stand condemned. The general
resultant is the opposite of this.

A Drift of Labor toward Certain General Groups

We have just
noticed that movements of labor in the group system, caused by
improvements in method, consist mainly in an upward flow of labor,
accompanied by irregular lateral movements, the labor drifting to the
right or the left as it is more strongly attracted now to one point
and now to another on the same horizontal plane. The general mass of
it swerves now to the right and now to the left in its general
ascending course, though none may be actually expelled. This
description of the drift of labor is too general even to describe all
the permanent currents. Some entire groups produce only or chiefly
luxurious goods, and to those there is the same drift of labor as
there is to the upper subgroups of the general series. If there be a
group of D's making an article which only the well-to-do can afford
to use, it will swell in size and in the volume of its output from the
same causes--improved methods and general enrichment--which cause
A''', B''', and C''' to outgrow A, B, and C.

Displacements of Mature Laborers naturally tending to

When an improvement is made in one of the upper subgroups
while the general flow of labor is toward these groups, the effect is
not usually to lessen the absolute number of workers in the upper
subgroup where the improvement has been made, but merely to prevent it
from getting a pro rata share of the labor that is moving upward
toward this tier of subgroups from the lower ones. The change in the
apportionment of the social laboring force between the upper subgroups
and the lower ones is made gradually, without violent transfers of
particular men from point to point, and merely by directing to the
upper subgroups a disproportionate number of young workers who are
selecting their fields of employment. In general, labor moves from
point to point in the system without requiring many particular
laborers to do so. As actual loss of places by persons of mature age
is the chief evil connected with changes in methods of production, it
is a most welcome fact that the influence which we are studying tends
naturally to reduce the extent of it.

The Discarding of Aged Laborers mainly caused by a Further

Quite apart from a demand for less labor at a particular
point in the system, there may occur a discharging of men merely
because of age and a substituting of younger men. In establishments
where the pace is a rapid one men have thus to give place to young
successors at an earlier age than the one at which men give place in
other employments. The effect of some machinery is to improve the
chances of old men, while that of other machinery is to reduce them. A
lightening of toil and a shortening of the working day preserve men's
powers and enable them to retain employment longer.

The Natural Tendency perverted by Monopoly

When hardships come on
a large scale in consequence of a discharging of workers, they are
chiefly due to an abnormal influence which now shows itself in ugly
and disquieting ways throughout the industrial system, that, namely,
of monopoly. Reducing forces for the sake of curtailing production and
raising prices is what does the mischief. This influence undoes at
many points the beneficent effects of free competition and causes
grave hardships to particular workers while affording no compensating
gain to the consuming public. It portends evil for society as a whole
as well as for the working classes, on which its hand may be heavily
laid. In a perfectly natural system, in which competition would do all
that pure theory at the outset of this study has assumed that it will
do, the evil entailed by local improvements would be relatively small
and the diffused benefits enormous. In proportion as the movement
approaches steadiness and as gains are made, not by radical changes,
now here, now there, and now elsewhere, with long intervals between
them, but by smaller economies made nearly everywhere and in very
quick succession, the cause of the hardship is reduced. There is less
of violent expulsion of labor from its fields and more of a gradual
drifting of labor rather than particular laborers from the subgroups
that create elementary products to those which fashion them into fine
and costly shapes. There is small hardship in the natural selection by
new laborers of the employments where they are most needed, and there
is often little in a transfer of a person who has tended a machine of
one kind to a machine of a different kind. Instances there still are
of manual skill brought to naught by the invention of a mechanical
automaton that does the work more rapidly and accurately than the hand
of man can do it; and the worker who possesses this skill must
usually, in such cases, content himself with an employment where his
more general aptitudes may stand him in good stead and insure him at
least an average rate of pay. The special aptitude which he had for
performing one operation counts for nothing; and this happens when men
who have worked in one department of a mill have to accept work in
other departments of the same mill or in other employments.

A Workman's Specific Loss as compared with his Share of a Social

The test question in cases like these is whether the man is
helped or harmed by the general effect of improvements, including not
only the one which has caused him to change his occupation, but all
others which have taken place since he began working. To this question
there can be but one answer: in the course of a lifetime the balance
is in favor of progress even in the case of the average victim of the
movement, and it is overwhelmingly so in the case of others. What a
man sacrifices when he is transferred from one machine to another is
usually more than offset in a term of years by what he gains in
consequence of the general increase in the producing power of labor.
At the time of the displacement he suffers, but by its constant
increase in wealth and productivity society more than atones for the
injury. The goods that emerge from the mills are multiplied; the share
falling to labor, as that share is determined by the test of final
productivity, grows steadily larger; and the men who have never served
a long apprenticeship at anything, but have learned their present
trades quickly and can learn new ones as quickly, are producing and
getting far more than they could possibly get under a regime of
skilled manual labor or of inferior machinery, and far more also than
their successors will get hereafter if, by any calamity, mechanical
inventions shall cease to be introduced and other product multipliers
shall be barred from the field. The hope of working humanity lies
mainly in the continuance of the changes which give it a forever
enlarging command over nature. Some classes might live comfortably
without this, but for the worker it affords the main ground of hope
for increasing comfort and a coming time of general abundance.

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