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

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

The Limits Of An Economic Society

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 the mode 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 for A'''M in any part of the area where this society
dwells would set men bidding for it from every quarter of that area
and would thus bring the local prices to uniformity. So a high rate of
pay for labor in one part would at once lure men from every other part
and reduce the high pay to the standard generally prevailing. The
picture is that of a social body having a large geographical extension
and yet intensely sensitive at every point to economic influences.
Prices, wages, and interest everywhere respond at once to an influence
that originates in any part of the extended area. In technical terms
this means that there is perfect mobility of labor and capital within
the group system represented by the table, and that this involves
equally perfect mobility as between parts of the area that the groups
inhabit. Men move from one section of the country to another in
response to an economic inducement as readily as they do from the
group A to the group B.

Barriers which divide the World into Economic Sections

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

Boundaries of the Society which is here Studied

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

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

The Need of a Rule by which a Part of the World may be Treated as an
Economic Society

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

Freedom of Movement as a Test

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

Essential Density of Population

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

Effect of Differences of Occupation

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

An approximately Static Distribution of Population

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

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

How an Unnatural Distribution of Population may be Treated

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

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

How Occupations vary with Differences of Land Crowding

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

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

General Differences between the Condition of Densely Peopled Regions
and that of Sparsely Peopled Ones

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

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

How Cost of Production and Cost of Acquisition are Equalized

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

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

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

The Approximate Static Adjustment of Prices

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

Static Wages and Interest

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

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

Slow Change of the Foregoing Adjustments

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

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

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

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

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

Next: Effects Of Dynamic Influences Within The Limited Economic Society

Previous: Economic Dynamics

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