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The Distribution of Wealth: A Theory of Wages, Interest and Profits; Clark, John Bates
20 paragraphs found.
Chapter V, Actual Distribution the Result of Social Organization

A study of exchanges naturally notices at the outset the motive for resorting to them. This motive is the gain that is inherent in a division of labor. This principle, however, is only the reversal of one that we have referred to in connection with primitive life. We there saw that the diversification of employments by an isolated man involves a loss of productive power. Whoever thus does many things, does them slowly and ill, and he is sure to have few and poor appliances for aiding him in the processes. Since the diversification of a man's productive action is a loss, specialization is a gain. Moreover, the farther the specializing is carried, the greater become the celerity and the accuracy of the man's work.


Catallactics, as a whole, falls into two divisions, of which the first includes the static, and the second the dynamics of an exchange economy. Progress is mainly the result of the social relation. One function of economic society is that of growth. It is becoming larger and richer, and its structure is changing. As time passes, it uses more and better appliances for production. The individual members of it develop new wants, and the society uses its enlarging process to gratify them. The organism is perpetually gaining in efficiency, and this is promoting the individual members of it to higher planes of life. In the producing operation there is more and more intelligence used, for the forces of nature are better understood and there is a better coördination of all the participants. There is more bounty on the side of nature, since more forces are placed at man's disposal; and there is more efficiency in the industrial ranks themselves.

Chapter VIII, How the Specific Product of Labor may be distinguished

How the Specific Product of Labor may be distinguished

Chapter VIII

In that static condition in which competition would produce its full effects and bring wages to a natural standard, the pay of labor, as has just been shown, would equal the product that could be separately traced to it. We have discovered a limited field in which whatever is produced is due to labor only; but we need to find one that is larger and more elastic. We have to look for an economic field to which many men may go, and in which they will be virtually rent-free and interest-free. They must be able to work unaided and also untaxed and to create a distinguishable product, all of which they will then get. A few men may, of course, till worthless land, and so make themselves free from landlords' and capitalists' claims. Many more may utilize instruments of other kinds that are too poor to afford a rent to their owners. A larger number still may get employment as additional workers in establishments that have good working appliances, and that pay no more for the use of them in consequence of the presence of the marginal men.


That no-rent instruments are not few in number is made clear by the fact that every tool, machine, building, vehicle or other auxiliary of labor that wears out by use must, in the course of its deterioration, necessarily reach a point at which it yields no net gain to its owner. So long as an entrepreneur can keep such an instrument in his service, and gain anything whatever by so doing, he will keep it. When he loses something by its presence, he will abandon it. When he neither gains nor loses by the presence of the worn instrument,—that is, when the whole product gained by using it is required to pay for the labor that utilizes it,—the instrument is in the concluding or no-rent stage of its economic career. Everything that wears out in the using has such an old age period of service, preceding the moment of its abandonment; and the aggregate of things that at any one date are in this condition is enough to constitute a very large outfit of no-rent appliances, by which labor may be aided. The effect of an increase of population, if other things remained unchanged, would be to prolong the period of service of all such deteriorating capital goods. To make the existing stock of capital goods available for the larger number of men, it would be necessary to work the worn tool, the rickety engine, the unseaworthy ship, etc., somewhat longer than it would have been used under former conditions. When it is at the point of abandonment, however, the labor that uses it creates wages only.


Such an intensive margin of the field for labor is by no means confined to agriculture: it may be traced throughout the industrial system. Everywhere there is a line that it does not pay to pass in adding to the number of workers who are utilizing the really productive appliances of industry. Though a hundred men can sail a steamship, a hundred and five may sail it better. In that case, the five extra men are on the intensive margin of utilization of the steamship and are virtually rent-free. Whatever the ship itself must pay to its owners, was paid when it was run by the original crew. The last five men that are taken on board, therefore, create a distinct product. They render the ship a more efficient carrier and put money into the owners' pockets; but they take this money out of the owners' pockets, when they draw wages. In mills, mines, shops, furnaces, etc., there is in this way often a chance to vary, within narrow limits, the number of men who are employed, without affecting the owners' incomes. If new men are thus taken, their whole product is given to them.


The opportunity for employment, which has been described by the term "zone of indifference," consists in the liberty to use capital-goods, or concrete instruments of production, in ways that make them yield more than they already do. Taking the working equipment of the world as it stands, we may get somewhat more out of it, if we spend more labor in using it. This is a different thing from getting more out of a given capital by a similar intensifying of labor. A mill with its machines as they stand can take more laborers than are now employed in it; but if the mill is worth a million dollars, that amount of capital is capable of employing a much larger number of marginal workers than the mill can use as it stands. The vast stock of working appliances that the United States possesses can enable more men to work than are now working; but sixty-five billion "dollars " not confined to these appliances, but free to invest themselves in any other things, could give openings to a much greater number of additional workmen. There is a radical difference between the margin of employment that is offered by a particular stock of capital-goods and the one that is offered by a given capital.

Chapter X, Kinds of Capital and of Capital-Goods

There are two opposite ways in which capital-goods aid production. Some things, like artisans' tools, help to fit for use the matter furnished by nature. They have an active, rather than a passive function to perform, for they impart utilities to other things. Machines that transform matter, vehicles that move it and buildings that protect it—all come in this category; and so do all appliances that, in the war between man and nature, range themselves on the side of man and help him to subjugate resisting elements to his use. These instruments constitute the active variety of concrete capital.


The materials on which implements work, on the other hand, are mechanically passive. They receive utilities, instead of imparting them; they undergo modification, and themselves modify nothing. In the contest between man and nature, they range themselves on the side of nature and maintain a receptive attitude toward man and his active appliances. Cotton is thus passive, while the spindle is active; bar iron is passive, while the roll and the hammer are active; and thus throughout the field of industry the character of the process itself draws a line of demarkation between actively working instruments and passive materials—between man's weapons of offence and nature's subjects for defence, or her elements that are undergoing subjugation. The class of passive instruments includes not merely the crude matter with which industry begins, but the products that pass, in an unfinished state, from one working group to another. It includes not only ore, but iron, and not only wool, but yarn, cloth and even ready-made garments awaiting purchasers. It includes all the stocks of merchandise that, in the hands of dealers, are awaiting the minor utilities of form, place, etc., that are necessary in order to make them entirely ready for final consumption.



Let A, again, be the raw material that will become successively A', A'' and A''', and in the last-named condition will be ready for consumers' use. Let the B's and the C's represent other articles in parallel stages of the producing process. There are men, both laborers and capitalists, who make the raw material, A; there are other men who transform A into A'; and each one of the transformations that follow is effected by one class of producers, with the needed tools, buildings and other appliances. There is a series of productive establishments, organized in a similar way, engaged in producing B and in transmuting it successively into B', B'' and B'''. There is a similar series of producers creating and transforming the material, C. Each group consists of laborers, capitalists and entrepreneurs. A''', B''' and C''' are goods in their final forms, quite ready for consumers' use; and this, in logical consistency, requires that they shall be at the very last point in their economic careers at which they are capital-goods at all. They are now in the retail shops waiting for purchasers. If they take one step more, they will cease to be capital-goods altogether and will become consumers' goods. Society, as the great producing organism, will have given them up, and individuals, as consumers, will have them. There is, then, no form of capital that is not an instrument in the hands of producing society. When the A''', the B''' and the C''' are taken by individuals, as such, they thus become consumers' wealth.

Chapter XII, Final Productivity the Regulator of Both Wages and Interest

Final Productivity the Regulator of Both Wages and Interest *17

Chapter XII

Instead of the plantation in our late illustration, we will think at once of the world, with its innumerable industries and its complete outfit of agents and appliances. It is, of course, isolated, since neither products, workers nor instruments can migrate to it or from it; and the rate of wages that it affords must be determined entirely within itself.


Add, now, a second thousand workers to the force; and, with the appliances at their service changed in form—as they must be—to adapt them to the uses of the larger number of men, the output per man will be smaller than before. This second increment of labor has at its disposal capital amounting to only half a hundred thousand dollars per man; and this it has taken from the men who were formerly using it. In using capital, the new force of workers goes share in share with the force that was already in the field. Where one of the original workers had an elaborate machine, he now has a cheaper and less efficient one; and the new workers by his side also have machines of the cheaper variety. This reduction in the efficiency of the instrument that the original worker used most be taken into account, in estimating how much the new worker can add to the product of industry. His presence has cheapened the instruments used by the first set of workers and has taken something from their efficiency. His own share of the original capital, as it is made over to him by the workers formerly in his immediate part of the field, consists also in the cheaper and less efficient instruments. For two reasons, therefore, he brings into existence less wealth than did one of the first division of laborers.


All that we have said about the change that must take place in the forms of capital, when the amount of it is fixed and the working force is increasing, applies here, where these conditions are reversed. The steady increase of the capital, if the amount of the labor be fixed, compels a similar change of forms. With one unit of capital and ten units of labor, the instruments will be simple and cheap. Hand tools will generally prevail; and buildings, roadways, bridges, vehicles, etc., will be of a makeshift kind, which will, at a small cost for each instrument, enable the men in some way to work. With two units of capital, a better type of instruments begins to prevail. Every increase in the amount of the capital shows itself primarily in transmuting poor appliances into better ones. There are, indeed, more tools, and there is more raw material; but the striking fact is that all the tools, etc., are costlier and more efficient. With the addition of the tenth unit of capital, the condition may be thought of as approximating that of our own country at the present day. There is much costly machinery, many durable buildings, a good supply of large ships, efficient railroads, etc.

Chapter XVII, How the Efficiency of Final Increments of Producers' Wealth is tested

In the interpretation of these statements there are cautions to be observed; and one of them connects itself with the assertion that, as capital increases, the new parts of the fund embody themselves in new qualities imparted to goods. It is here assumed that labor remains unchanged in amount, and that it is a per capita enlargement of capital which forces entrepreneurs to procure better and better working instruments. Indeed, with workmen doubled in number and with capital doubled in amount, there would not need to be the qualitative improvement of the capital-goods of which we have spoken. If we could give to the new men exactly the same outfit of working appliances that the former workers possessed, the capital would be doubled in a more or less natural way. There would, it is true, be a difficulty in doing this, owing to the relation of land to other capital-goods. We could duplicate every part of the outfit except the land; and, because we could not duplicate the land, we should still be obliged, in enlarging the capital, to make changes in the quality of the goods that embody it. What we desire now to make clear is, that our assertions concerning the natural way in which capital increases have reference to an increase that is not accompanied by a parallel enlargement of the working population. With ten units of capital in the hands of ten men, that fund is in certain concrete shapes; while with twenty units of it in the hands of ten men, it takes different shapes. The improvements in the instruments, much more than such increase in the number of them as may also take place, embody and measure the new capital. The final increment of capital is mainly, though not wholly, qualitative.


From the first, we have remembered that capital is material. It exists only in goods that can be seen, touched and handled; and yet it now appears that final increments of capital cannot be thus manipulated. We cannot, in any literal and physical way, take out of a machine such a final capital element as we have just defined, leaving the rest of the machine intact. There is no mechanical process that can take out of a tool of the first grade that which makes it better than one of the second grade and even preserve for use the element that is thus withdrawn. Increments of capital may be arranged in an imaginary series, in the of order of their productive efficiency, so that the final unit is the least efficient one; but it is utterly impossible to take the working plant of any employer and separate it bodily into such increments. Assorting the different machines into classes would not do this, and taking them to pieces certainly would not do it. If we let them all wear out and then replace them with inferior appliances, using what is saved by the buying of inferior tools in improving the quality of some other general plant, we indirectly separate the final increment of the capital from the other increments; yet, when the process is completed, we still have that increment inseparably tied to others in a new combination. All the increments, taken together, constitute a stock of capital-goods, or appliances of trade, that can be handled bodily; but increments of capital, separately viewed, are abstractions, for they are mainly nothing but qualities of material things. We are, in fact, in a realm of such abstractions, when we reason about the productivity of successive "doses" of capital applied to a farm, a mine or a manufacturing plant. By reducing capital, for purposes of study, to a series of increments, we are able to analyze a concrete thing into qualities; but, while these together may constitute the thing, separately they have only an ideal existence.

Chapter XVIII, The Growth of Capital by Qualitative Increments

The new capital, as thus composed, is under a very composite control. It is all, indeed, the property of the social organism; but this means that a certain foreordained part of it is in the hands of each entrepreneur in the system. A social law governs this apportionment; and, if the law could work without friction or disturbance, it would make the apportionment unerringly. If, under such conditions, a million dollars' worth of capital were injected into the working fund of an entire society, a definite fraction of this amount would go to every sub-group in it; and a law that it is possible to trace would determine how large each of these fractional amounts should be. Interest, under such conditions, would conform to the product of this widely distributed increment of true capital, consisting mainly in qualities newly infused into old appliances. Before us, then, is the further problem of tracing the manner in which society, by no conscious act but by what is clearly a collective or social act, makes this apportionment, assigning to each group and to each sub-group its determinate share of the whole fund of capital, as well as of each new increment that adds itself to the fund.


More capital, as has been shown, means better capital-goods; and we can now see how they are secured. In terms of our table, this improvement signifies that the H group becomes larger and that, in this way, a larger amount of productive energy is available for replenishing the tissues of fixed capital, as they perish in the using. Either more tools or better ones can now be made; but the conditions require that, in the main, it shall be better ones. The fixed number of workers in the A, B and C groups get improved appliances, and they turn out more of the A''', the B''' and the C''' than they formerly did. The improved tools maintain themselves, as the original ones did; and the special surplus of consumers' goods that goes to the H group is sufficient to maintain that group in an enlarged state.

Chapter XX, Production and Consumption synchronized by rightly Apportioned Capital

Capital-goods imply waiting for the fruits of labor. Capital, on the contrary, implies the direct opposite of this: it is the means of avoiding all waiting. It is the remover of time intervals—the absolute synchronizer of labor and its fruits. It is the means of putting civilized man in a position which, so far as time is concerned, is akin to that in which the rude forester stood, when he broke off limbs of dead trees and laid them on his fire. The very appliances which, in their extent and complexity, seem in one view to mean endless waiting, in another view mean no waiting at all but the instantaneous appearance of the final fruits of every bit of labor that is put forth.

Chapter XXI, The Theory of Economic Causation

Figure. Click to enlarge in new window.Letting the amount of capital remain fixed and causing the amount of labor to be measured by the line AD, we will go through the imaginary process of supplying this labor, unit by unit. The first unit, then, so long as it remains alone, has a vast amount of capital to coöperate with it. For simplicity, let us say that each unit of labor is a tenth of the whole force and that, while the first unit is alone, it has a profusion of appliances, all of the costliest grade, to coöperate with it. It is, in fact, aided by ten times the amount of capital that a single unit will, in the end, lave to aid it. If we are to think of an actual society in which labor is thus, as it were, over-saturated with capital, we shall have to imagine costly materials, buildings of the most solid and enduring kind, motive power in abundance, and automatic machinery of a degree of costliness and perfection that is far from having been attained as yet, even in the departments of industry in which invention has done its best. With all that machinery to aid it, the product of the one unit of labor will be enormous.


The surrender of a share of capital by the first division of the working force is the important fact here to be considered. With the coming of the second increment of labor, tools are multiplied; but they are so cheapened that all of them together embody only the original amount of capital. How do we estimate the specific product of the new increment of labor? The essential fact is that the new working force and the old one share alike in the use of the whole capital, and with its aid they now create equal amounts of product. The earlier men have relinquished a half of the capital that they formerly had; and in making this surrender, these men of the earlier division have reduced the productive power of their industry, by the amount that the extra share of capital formerly imparted to it. This reduction measures the amount of product that is attributable to the relinquished capital. Of prime importance is this fact that the product which is now attributable to the first section of the working force, with its tools and other appliances, has now become smaller than it formerly was, solely by reason of the capital that has been taken from it. The excess of its former product over its present one is not attributable to labor; and no exploiting of labor takes place, though each of the two units now receives less than the first one formerly received.


As we have, throughout this study, kept constantly before our eyes the fact that, whenever one man comes into the force, the capital changes its forms and adapts itself to the number of men who are to use it, so we have to keep as constantly in mind the fact that the modes of labor itself have to change in a parallel way. A working force may be built up, unit by unit, so that the enlargement of the force seems to be quantitative; but the change in labor, abstractly regarded, is mainly qualitative. More effort is expended, as the force enlarges; but it shows itself, not so much in doing things that were formerly left entirely undone, as it does in doing nearly everything in a more perfect manner. If the work is agricultural, the ground will be more evenly fertilized, the seed more uniformly distributed, etc. This is one type of change that labor, as a process, undergoes when workers become more numerous. Another type of change is that which is caused by the altered character of the tools and other appliances that a laborer has to use, as the force becomes larger, while the amount of the capital remains the same. Every change in the instruments with which men work changes the mechanical movements in which work consists. Labor, however, is capable of being measured in units, as though it were homogeneous; and there is a practical method of measuring the product of all of it.