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 al
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.