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Leading Facts Concerning Money
Production A Synthesis Distribution An Analysis
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The Measure Of Consumers' Wealth
Effect Of Improvements In Methods Of Production
The Law Of Interest
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Summary Of Conclusions
Conditions Insuring Progress In Method And Organization

The Socialization Of Industry

We have now before us a few principles of so general a kind that they
apply to the economy of the most primitive state as well as to that of
the most advanced. It is not necessary that men should live in any
particular relation to each other, in order that, in creating and
consuming wealth, they should exemplify these principles. They would
do this even though they never came into touch with each other, but
lived, as best they could, each man on his solitary farm. Laws of this
general kind result from man's relation to nature, and not at all from
the relation of different men to each other. Let a man keep wholly
aloof from other men, apply his labor directly to nature, and he can
produce wealth of the various kinds that we have described. He can
secure food, clothing, and other things for his own use, and he can
make tools to help him in securing them. He will appraise the
consumers' goods according to the law of what has been called final
utility or, in another view, effective specific utility, and he will
also test the comparative usefulness of his various tools by an appeal
to the law of final or specific productivity.

Social Economy the Chief Subject of Study

We care most to know how
an organized society produces and uses its wealth, and in making this
inquiry we encounter at once phenomena that are not universal. The
civilized society creates its wealth cooeperatively, by the joint
action of its various members; that is, it proceeds by means of a
division of labor and an exchanging of products. Moreover, it has, in
some way, to share the sum total of its gains among its various
members. It has to apportion labor among different occupations for the
sake of collective production, which is a grand synthetic operation
whereby each man puts something into a common total which is the
income of all society. It has, further, to divide the grand total into
shares for its different members--an analytical operation in which
each man takes something out of the aggregate for his personal use.
This is distribution in the narrower sense of that term--the
apportionment among the members of a civilized society of the fruits
of production. In the wider sense the term also includes the
apportionment of the sacrifices incurred in the joint production.
Distribution, as thus defined, is the element that appears in economic
life in consequence of social organization. This is a secondary
element, indeed; for man, nature and their relations and interactions
are the primary facts, and the relations of men to each other come
logically after these. Social organization, however, is so
transforming in its effects as to reduce to small proportions the
amount of attention it is worth our while to devote to the economy of
the primitive types of life. It is necessary to make some study of
that economy, for it is thus that we place before ourselves the fact
that there are universal economic laws and perceive distinctly the
nature of some of the more important of them.

Facts Peculiar to Socialized Industry

The term Political Economy
denotes a science of industry[1] as thus socialized, for it is a
science of the wealth which is produced in an organized way by the
people of a more or less civilized state. The general truths which we
have thus far stated apply to such an economy, indeed, but they also
apply to the wealth-creating and wealth-consuming processes of
uncivilized peoples, and even of isolated individuals who have no
dealings with each other. They are truths of Economics in the
unrestricted sense, and we have now to study the special truths of
Political Economy. When production goes on by division of labor, as
when one man works at one occupation and another at another, phenomena
appear that do not appear in more primitive life; and still others
appear when, within each occupation, there is a division of functions
between the laborer and the capitalist, as is the case whenever one
set of men furnish tools of production and another set do the work.
The special laws of this highly developed economic system require far
more extended study than do those more general laws which are common
to it and simpler systems. We now continue to recognize the universal
and basic truths which have been stated in the foregoing chapters and
proceed to the study of the special principles which apply only to
organized economic life.

[1] We use this term in a broad sense, including agriculture
and commerce as well as manufacturing.

Specialized Production the Means of Diversified Consumption

As the
kinds of goods that we individually make become fewer, the things
which we get and use become more numerous and varied--such is the law
of economic specialization. Society as a whole produces an infinite
variety of things, and the individual member of it secures for himself
goods of very many kinds. The typical modern worker is, in his
production, a very narrow specialist, but in his consumption he is far
less a specialist than was the rude hunter who was able to enjoy only
the few goods which he himself produced. The modern worker's tastes
are omnivorous, for he has developed an immense variety of wants and,
through social organization, he has acquired the means of satisfying
many of them.

The Position of Individuals in the Producing Organism

When we say
that production has been socialized, we mean something very
far-reaching. We mean that an organization has grown up in which men
are members or parts of members, and that this great organization has
undertaken to do the productive work for all the individuals that
compose it. For the first time we now recognize a sociological fact
among the premises of economic science. When men, whose predecessors
may have lived in isolated families or in a society organized for
defense or for the mere pleasures of association, now develop a truly
economic society, the individual depends on other individuals as well
as on nature for the supply of his wants. Economic independence gives
way to interdependence, because the fortune of each man is largely
dependent, not merely on his own efforts, but on the relations which
he sustains to other men. Simple laws of nature still largely control
his income, but social laws also have a certain control over it.

Exchanges in their Primitive Stage

The exchanging of products is,
of course, the process with which the organization begins, and this
process is introduced by easy and natural stages. The man who at first
makes everything for himself develops a particular aptitude for making
some one thing; and, though he may still continue to make most things
for himself, he finds it advantageous to barter off a part of the
supply of the one article for the making of which he is especially
well fitted. He seeks out a neighbor whose special aptitude lies in a
different direction and who has a surplus of some other article. It
may be that one is a successful fisherman and the other is, by
preference, a maker of clothing, and that they can get a mutual
benefit by an exchange of food for raiment.[2]

[2] If we were giving a history of the division of labor, we
should have to record the effects of differences of climate
and of agricultural and mineral resources in occasioning, at
an early period, a territorial division of labor. We are here
describing the division of labor which occurs within a
society and in consequence of what may be called social
economic causes.

The Intermediate Type of Exchanges and the Final One

In the next
stage a man becomes wholly a specialist, making one kind of product
only and bartering it away for others. It might seem, at the first
glance, that differentiation has now done its full work; but it is
very far from having done so. Making one complete good for consumption
is still a complex operation, which can advantageously be subdivided
in such a way that one man produces a raw material while another works
it up into a useful shape. A gain may be made by a further division of
the manufacturing process, whereby the first worker makes only the
rawest material, another fashions it somewhat, a third carries the
process farther, and a fourth or a still later one completes it. In
modern industry the material must often pass through very many hands
before it is ready to be made over to the consumer. Each man in the
series puts a touch on it and passes it on to his successor.


A''' is an article of consumers' wealth and A is the rawest material
that enters into it. A' is this material somewhat transformed; A'' is
the same material after it has received the second transformation and
needs only a final touch to convert it into A''', in which state it
will be ready for the consumer's use. We have here a symbol of what is
actually taking place in the industry of the world. Cattle are grazing
on western ranches; hides are tanning in the woods of Pennsylvania;
leather is going through the many changes that fashion it into shoes
in the mills of Brockton; shoes are arranged on the shelves of
retailers in New York in readiness for the people who are to wear
them. These are stages in the making of a single product, and a
thousand different products are coming into existence in a like way.

A Representation of the Groups, or Specific Industries, which compose
Economic Society

If we put beside the series of A's a series of B's
and one of C's, we have a much simplified representation of what is
actually taking place. There are, in reality, a myriad of different
things which almost every consumer uses, and every one of them is made
by a series of productive operations like the one we have described.

The very fact that there are so many of them that it is hopeless to
try to represent them all in the table makes it desirable to
illustrate the principle by tabulating only a few and to assume that
these few are all that there are. For the purposes that we have in
mind it is entirely safe to suppose that a series of A's, one of B's,
and one of C's represent all the consumers' goods that society uses.
What we wish to ascertain is how the different series work together to
furnish an income for each member of society.

The Organization Spontaneous

Laborers can go where they will, and
yet they are in some way brought into an orderly relation to each
other, being placed in certain proportions in different industries.
Capitalists also are free to invest their funds as they will, and yet
there is a certain amount that is naturally devoted to each branch of
business. How this apportionment takes place we can most readily
ascertain by creating such an imaginary and very much simplified
society as this table furnishes.

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

The series of A's, which we have already studied, represents one kind
of raw material ripening into a finished product. B represents a
second kind of raw material, which, like the A, is produced by its own
set of workers and is then passed on to a second, who transform it
into B'--a partly finished product. These then pass it on, as the
corresponding set of men passed on the A'. They hand it over to a set
of workmen who change it into B'', a nearly completed product, and
these hand it over to men at B''', who, by giving the final
fashioning, bring it into the form of a finished consumers' good. The
C's represent another general group of workers who transform the raw
material, C, into the finished product, C'''.

Industrial Groups and Subgroups

Each of these more general bodies
of workmen and employers, such as the entire series of A's, we may
call an industrial group, and the divisions within each of them, such
as A' or A'', we may term subgroups. The product of a group is a
complete article, while that of a subgroup is not a complete article
nor any part of an article that can be taken bodily from it. Yet it is
a distinguishable element in the article. The product of the shoe
factory is certainly not complete shoes, for the owners of the factory
buy leather which has already passed through the hands of tanners; and
the tanners themselves bought it in the shape of raw hides, which were
furnished by still earlier producers. What the shoe factory has done
is to impart a new utility to dressed leather by transforming it into
shoes. It would be impossible ever to get that utility out again, or
to point to any one part of the shoe as the only part that contains
it. What the factory has really made is therefore a utility--a
distinguishable quality which pervades a concrete thing. It makes the
difference between the leather and the shoes. What the tanner has
created is, in like manner, another utility, which makes the
difference between raw hides and leather. Groups, then, in their
entirety produce whole articles for direct use, while subgroups
produce distinguishable utilities which are embodied in such articles.
The sum total of all the different utilities constitutes the article.
It is a complex of useful qualities held together by the fact that
they are attached to the same original matter.

Proportionate Production

All the subgroups working together in an
orderly way not only produce the consumers' wealth that society needs,
but produce the different kinds of consumers' goods in nicely adjusted
proportions. Unless the general order of the group system is
disturbed, there is a normal amount of A''' put on the market and also
normal amounts of B''' and C'''. This result is attained by influences
that run through the productive organism and bring about an adjustment
of the comparative amounts of labor in the different occupations. If
competition worked quite freely, this adjustment would be so nice that
no military apportionment of forces among different brigades,
regiments, etc., made consciously and by the most intelligent
commanding officer, could surpass the perfection of it. There would be
also an equally fine adjustment of the comparative amounts of capital
devoted to different industries. In the actual productive organism
each man goes where he will--capitalist, laborer, and employer of
capital and labor alike. Each man acts in this respect as though there
were no such thing as coercion, and as though he might, with unchecked
freedom, do solely what is good in his own sight. By reason of the
fact that all are seeking to produce what they can in order that they
may get what they can, there comes into operation an organic law which
brings the groups and subgroups into a delicate balance, in point of
size and output, whereby the grand total of force that society
commands is prevented from making too much of one product and too
little of another, and is made to do its utmost in getting a large sum
total of wealth for the benefit of its various members.

What the "Division of Labor" Involves

This is the real
signification of what it has been common to call the division of
labor. It is the socialization of labor, or the gathering of isolated
laborers into a great organism that, entirely without coercion,
determines in some way what each one shall do, and not only makes the
product of the whole a myriadfold greater than without any
organization it could be, but causes this product to take certain
well-adjusted shapes which, as we shall later see, serve consumers
better than they could be served by products in misadjusted

Capital as well as Labor Apportioned

As we have said, there is a
corresponding division of capital or an assignment of different parts
of the total fund to different employments; and this is made in the
same way as is the division of labor and results in an equally nice
adjustment. Each bit of capital, like each workman, becomes, as it
were, a specialist. It may take the shape of an instrument which is
capable of performing only its one service, like the loom, which is
capable of doing nothing except weaving; but even if the tool is
somewhat adaptable, like a hammer which can be used in several trades,
it is, as it were, stationed in one trade and held, by economic
influences, at that one point in the system. The house carpenter keeps
his hammer though the cabinet maker could use it. Each bit of capital
helps to create a particular utility, and the number of units of the
fund that each subgroup contains is, as we shall see, so arranged as
to enable the fund as a whole to do its utmost for the general good.
It is all without the use of force, since each bit of capital does
what its owner pleases to have it do.

A Government Presupposed

Of course there must be a government over
it all. Such a method of producing wealth could never continue unless
property were secure and unless it were made so without much effort on
the part of its owners. A blacksmith who should have at one moment to
use his hammer as a tool and at another to wield it as a weapon of
defense could make but poor headway, and a society in which such a
state of things existed in various trades would be too anarchic to
permit the elaborate division of trades which is the key to success in
industry. The most noticeable fact about organized production is that
man is forever letting go the thing he has made or helped to make and
allowing it to pass out of sight and reach without losing or greatly
imperiling his title to the amount of wealth it represents. He casts
his bread on the waters, but they bring him a return for it. Under
these circumstances it is impossible for him to protect his product as
the savage protects his tools, his clothing, and his hut. What a
modern worker makes passes into the hands of other men and gets
completely out of the maker's direct personal control. If he wanted it
again, he could never find it; and if he could find it, it would be in
a new shape and other men would have claims upon it. The man who has
sold some hides that in the end have become shoes can hardly identify
his product on the shelves of retail shoe dealers all over the
country, or perhaps all over the world. If by a miracle he could find
the particular bits of leather that in their raw stage he himself has
furnished, they would be in new and far more valuable forms than they
were when he had possession of them. The shoes contain utilities
which the man who furnished the hides cannot claim to have created.
They have been changed and improved by elements contributed by many
other persons, such as manufacturers, carriers, merchants, etc., and
he could never carry away the concrete thing that he himself produced
without carrying with it other men's property.

The Surrendering of Goods and the Retention of Values Features of
Social Industry

Socialization of industry means, then, that
individuals forego all effort to retain their own concrete products,
but that they retain certain parts of the value of the products to
which they have made contributions. The value of A''' when it is sold
is claimed by men at A''', A'', A', and A according to some principle.
The values of B''' and C''' can be followed until they reach the
pockets of the men who have contributed their several shares to the
making of these things. All this requires a government and a
well-developed system of laws and courts for the protection of
property, including the protection of it in the form of a claim to a
value that is embodied in things which have gone beyond the maker's
reach. Property here takes a refined form which requires that the man
should forego all desire to keep the literal thing he has made and
should make it his aim to retain the value of it in some other form.
It is a comparatively simple matter to guard a concrete article which
a man has in his possession, though even that requires some energy on
the part of the police force and is never quite perfectly
accomplished; but it is a far more difficult matter to enforce a claim
that a man has against other men, in consequence of some utility that
has been created by him but has gone away from him and mingled with
utilities created by many other persons in a product that the man will
never see. It is the problem of guaranteeing to the shoemaker the due
return for the stitches he has put into shoes when the shoes
themselves have gone to buyers and wearers in every quarter of the
land and many quarters of the globe.

Groups under a Socialistic State

In political economy as
distinct from general economy we take one premise from sociology and
another from politics. We assume that society exists and that it has
taken on a political character, by establishing laws with courts to
interpret them and officials to enforce them. We do not, however,
assume that the direction of industrial affairs is in the hands of
such officials. In the main industry is organized in a spontaneous
way. Men choose such occupations as they like, and when there are too
many of them in one group and too few in another, the rewards
naturally increase in the group where a larger force is needed, and
this lures men in that direction.

In a socialistic society such adjustments would be made under the
direction of the state. Officials would have to decide when more
workers are needed in the A series and less in the B series and would
have to use either inducements or some kind of compulsion in order to
move them from the one group to the other. What we actually have to
deal with is a society that shapes itself by the free acts of
individuals, and we have to see how, in this way, it organizes itself
for production and divides among different claimants the product that,
by the joint action of all of them, it creates.

Gains from the Organization of Industry

The advantages of the
division of labor consist in an increase in the quantity of products
and in an improvement in their quality, and the quantitative gain is
almost beyond computing. The advantage appears mainly in the middle
and upper subgroups of the series, which transform the materials,
rather than in the lower subgroups, which produce them; and yet there
is a gain everywhere from such organization. A man produces far more
when he performs the same operation many times than when he goes
through a whole series of unlike operations. Moreover, he can perform
the single operation far more accurately and can thus attain a more
perfect result. He can learn his minute trade more easily than he
could a complex one. Where unusual strength or skill is required, the
work may be given to persons who have the requisite quality so that a
good product can be insured, and none of the labor of these superior
workers will need to be wasted on work which inferior labor can
perfectly well perform.

Improvement in the Forms of Capital

The greatest of all the
advantages that come from this division and subdivision of
wealth-creating processes comes in the way of applying machinery. A
machine is a hopeless specialist and can, as a rule, put only a single
minute touch on the material submitted to it; and the introduction of
machines differentiates capital in a way that is parallel to the
minute subdivision of labor. If the machine is to work at all
economically, it must put its touch quickly on one after another of a
series of articles, as they are submitted to it in uninterrupted
succession. If only one kind of machine were employed in the making of
shoes--if, for instance, the sewing of the uppers to the soles were
done on sewing machines, even though all the rest were done by
hand--it would be natural and almost necessary to have one class of
workers to prepare the uppers, another to prepare the soles, and a
third to sew them together by aid of the machine. When the several
stages of the process are thus given over to different classes of
workers, the situation is ripe for the application of more machines,
and inventors readily devise apparatus that will perform one or
another minute part of the manufacturing process. In the end most
branches of manufacture take such shapes that the raw material is
intrusted to a series of machines and passes from one to another by a
nearly continuous movement, till it emerges from the hands of these
automata as complete as any manipulation can make it and ready for the
merchants who will convey it to their customers.

Economy of Capital

There is an economy of capital involved in the
fact that instruments can be used thus continuously. A worker does not
have to have several sets of tools, many of which would be idle the
greater part of the time, as would be the case if the man performed
several unlike operations; but the greatest economy comes from the
energy, rapidity, and accuracy with which the new instruments act. The
tools are far more efficient than they could be if human muscles
furnished the power and eyes and nerves supplied the deftness and
accuracy that the making of the goods requires. Automata which men set
working excel hand tools with men wielding them by a greater ratio
than can be calculated.

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