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

causes.



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

tend.[2]



[2] IMPROVEMENTS AND PRICES UNDER COMPETITION



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

Establishments



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

consideration.



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



A

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

Others



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

Consumed



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



This

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

Diminish



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

Influence



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

Gain



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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