The Economics of Welfare

Pigou, Arthur C.
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London: Macmillan and Co.
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4th edition.

1. [1] Minutes of Evidence, p. 71 Clifford (Agricultural Lock-out, p. 179) describes the way in which farmers were stimulated by the 1874 dispute to improve their organisation, and to do the same work as before with fewer men. In like manner, the great anthracite coal strike in the United States in 1902 led to the invention of economical methods of utilising other fuels, which continued to be employed after normal conditions had returned.

2. [2] Goring, Engineering Magazine, vol. xx. p. 922.

Part III, Chapter II

3. [3] L. L. Price, Industrial Peace, p. 62.

4. [4] U.S.A. Industrial Commission, xvii. p. lxxv.

5. [5] Ibid. p. lxxvi.

6. [6] Royal Commission on Labour, Report, p. 49.

7. [7] Ibid. p. 49.

8. [8] Ibid. p. 49.

9. [9] Cf. Owen, Potteries, p. 142.

Part III, Chapter III

10. [10] The Claims of Labour, p. 190.

11. [11] As in the Midland Iron and Steel Board (Ashley, British Industries, p. 57).

12. [12] Industrial Conciliation Conference, p. 43. It may, perhaps, be suggested that a decision by a large majority, e.g. seven-eighths of those present, would be a still better plan, as it would eliminate the possibility of obstructive tactics on the part of a single faddist.

13. [13] U.S.A. Industrial Commission, xvii. p. c.

14. [14] Industrial Conciliation, p. 134.

15. [15] Cf. Aldrich, U.S. Federation of Labour, 1898, p. 253.

16. [16] This result came about in the federated coal district in 1896 (MacPherson, U.S.A. Bulletin of Labour, 1900, p. 478).

17. [17] Cf. the discussion in the boot and shoe trade conference previous to arbitration in 1893. The employers were careful to insist that the concessions they proposed were not to be taken as prejudicing their case in the event of arbitration becoming necessary. Cf. also Mr. V. S. Clark's Report on Labour Conditions in New Zealand, U.S.A. Bulletin of Labour, No. 49, pp. 1192-3.

18. [18] Industrial Commission, xvii. p. 500.

19. [19] Schultze-Gaevernitz, Social Peace, p. 165.

20. [20] Even Sir David Dale, though entirely trusted by the leaders of the employees, seems on one occasion to have been suspected by some of the rank and file, who knew him less well. (Cf. Price, Industrial Peace, p. 50.)

21. [21] Strikes and Lock-outs, 1892, p. 217. There was the same rule for the National Arbitration Board, agreed upon in 1901 between the American Newspaper Publishers' Association and the International Typographical Union (Industrial Commission, xvii. p. 367).

22. [22] The Window Glass Cutters' League of North America has the following interesting method of selection: "If the arbitrators cannot agree on the referee, then each arbitrator shall write two names of disinterested parties, not in any way connected with the glass business, on slips of paper, all names shall be put into a bag, and the first name drawn out shall be the person selected as the referee" (Rule 18, ibid. p. 365).

23. [23] This argument is more strong, but the preceding one is considerably less so, when the referendum is on the plan of that provided for in the rules of the American Amalgamated Association of Iron, Steel and Tin Workers. Here, when a conference between employers and employed fails to agree, "it requires two-thirds of all the members of the organisation voting to insist upon the demands which have given rise to the disagreement" (Industrial Commission, xvii. p. 340).

24. [24] Provision 9 of the Agreement Report on Collective Agreements [Cd. 5366], 1910, p. 231. When the Union failed to expel the London strikers in 1899, Lord James of Hereford awarded £300 damages from the Union's deposit to the employers (ibid. p. 505). Evasion of the fine by refusal to replace money withdrawn under it can be met by a rule that, in this event, the whole of the deposit shall be forfeited. When the agreement was renewed in 1909, the phrase providing for expulsion from the organisation was deleted.

25. [25] Loc. cit. p. 11.

Part III, Chapter IV

26. [26] Cf. Mr. and Mrs. Webb's opinion of the efficacy of Lord Rosebery's luncheon party in conciliating the parties in the coal dispute of 1893 (Industrial Democracy, p. 242).

27. [27] The Durham Coal Strike, 1892.

28. [28] The Federation Coal Strike, 1893.

29. [29] The Clyde and Belfast Engineering Dispute, 1895.

30. [30] The London Cab Strike.

31. [31] Bulletin of U.S.A. Bureau of Labour, No. 60, p. 421.

Part III, Chapter V

32. [32] Labour Gazette, Feb. 1902, p. 39.

33. [33] U.S.A. Industrial Commission, vol. xvii. p. 423.

34. [34] Cf. The Report of the Industrial Council on Industrial Agreements, 1912, p. 7.

35. [35] Royal Commission on Labour, Report, p. 99. Of course, universal compulsion to accept awards, unaccompanied by universal compulsion of reference, would have this effect in a far more marked degree.

36. [36] Ramsay MacDonald, The Social Unrest, p. 109.

37. [37] Chapman, Economic Journal, 1899, p. 598.

38. [38] Gilman, Methods of Industrial Peace, pp. 116-17.

39. [39] Cf. Industrial Commission, vol. xvii. p. 329.

40. [40] Cole, The World of Labour, p. 314.

41. [41] Cf. Mond, Industry and Politics, p. 131.

42. [42] Cf. A Survey of Industrial Relations by the Committee on Industry and Trade, 1926, pp. 355 et seq.

43. [43] Report by Sir George Askwith [Cd. 6603], p. 17.

44. [44] United States Bulletin of Labour, No. 86, 1910, p. 17.

45. [45] Ibid. No. 76, p. 666.

46. [46] [Cd. 6603], p. 17.

47. [47] In Canada there have, in fact, been numerous illegal stoppages of work and very few attempts to enforce penalties for them. The Deputy Minister of Labour has stated publicly: "It has not been the policy of successive Ministers under whose authority the statute has not been the policy of successive Ministers under whose authority the statute has been administered to undertake the enforcement of the provision."—United States Bulletin of Labour, No. 233, 1918, p. 139. Cf. also Report of the Delegation to inquire into industrial conditions in Canada and the U.S.A. [Cmd. 2833], p. 80.

48. [48] This Amendment admits that a strike may be legal if (1) the strikers are not working under an award or industrial agreement or decide by secret ballot that the award no longer binds them, and (2) give fourteen days' notice to the Minister of Labour of their intention to begin a strike (Economic Journal, 1921, p. 309).

49. [49] Minimum Wage-fixing Machinery, International Labour Office (1927), p. 56.

50. [50] Ibid. pp. 85-7.

51. [51] State Experiments in Australia, p. 168.

52. [52] Cf. Montgomery, British and Continental Labour Policy, p. 345.

53. [53] Cf. The Report on Conciliation and Arbitration, to the Ministry of Reconstruction [Cd. 9099], 1918, Par. 2.

Part III, Chapter VI

54. [54] Cf. ante, Part II. Chapter IX. § 14.

55. [55] Political Science Quarterly, vol. xii. p. 426.

56. [56] Cf. Chapman, The Lancashire Cotton Industry, p. 211.

57. [57] Schultze-Gaevernitz, Social Peace, p. 192.

58. [58] Schultze-Gaevernitz, Social Peace, p. 136.

59. [59] For a mathematical treatment of the problems discussed in this chapter, cf. Appendix A of my Principles and Methods of Industrial Peace.

Part III, Chapter VII

60. [60] Goldmark, Fatigue and Efficiency, p. 284.

61. [61] Cf. Chapman, "Hours of Labour," Economic Journal, 1909, p. 360.

62. [62] Cf. Gini, Report to the League of Nations on Raw Materials and Foodstuffs, 1922, p. 41.

63. [63] Cf. Marshall, Royal Commission on Labour, Q. 4253.

64. [64] On the effects upon output of a pre-breakfast start, cf. [Cd. 8511], p. 58 et seq. This Report concluded that in certain types of munition work the start before breakfast might be abolished with advantage to the output (p. 66).

65. [65] Second Interim Report on Industrial Fatigue [Cd. 8335], p. 50.

66. [66] Cf. Leverhulme, The Six Hours Day, p. 21.

67. [67] Health of Munition Workers, Memorandum, No. 12 [Cd. 8344], p. 9.

68. [68] "Report on Hours of Work and their Relation to Output," 1927 (International Association for Social Progress, British Section), p. 6.

69. [69] Health of Munition Workers, Memorandum, No. 12 [Cd. 8344], p. 10.

70. [70] Conrad, Handwôrterbuch der Staatswissenschaften, vol. i. p. 1214.

71. [71] Report of the Labour Association, Special Committee on Hours of Labour in Continuous Industries, p. 10.

72. [72] Ibid. pp. 10, 11.

73. [73] For a good discussion of the pitfalls to be avoided in a concrete study of the relation between hours of labour and efficiency, cf. Sargent Florence, Use of Factory Statistics in the Investigation of Industrial Fatigue.

74. [74] Cf. Proud, Welfare Work, pp. 50-51.

75. [75] As Miss Goldmark points out, however, this consideration affords no excuse for the overtime that in fact often prevails in the United States Canneries among the workpeople who label and stamp the cans after they have been sealed (Fatigue and Efficiency, p. 187).

76. [76] Goldmark, Fatigue and Efficiency, p. 88.

77. [77] Second Interim Report on Industrial Fatigue [Cd. 8335], 1916, p. 16.

78. [78] Report of the Royal Commission on the Poor Laws, p. 1185, footnote.

79. [79] This point is illustrated indirectly by the small amount of overtime found among women workers, as compared with men workers, in the bespoke tailoring trade. The men are skilled hands whose number cannot easily be supplemented. But the women are unskilled hands, and "the readily available reserve of semi-skilled wives and daughters, who may at any time be pressed into work, tends to relieve the seasonal pressure upon the less skilled, or women's section of the trade" (Webb, Seasonal Trades, p. 87).

Part III, Chapter VIII

80. [80] But cf. post, § 13.

81. [81] This consideration is sometimes used as an argument against paying equal piece-rates to women engaged in the same operations as men. In certain engineering operations, for example, employers have claimed that women, being slower workers than men, involve much higher proportionate overhead charges (Report of the War Cabinet Committee on Women in Industry, p. 84). Plainly; however, reasoning of this type points to a lower piece-rate for all slow workers, whether male or female, than for fast workers, not to a lower piece-rate for women as such than to men as such.

82. [82] Jevons, Methods of Social Reform, p. 123.

83. [83] Arrangements are frequently made by progressive firms, both in America and in this country, for enabling workmen to submit suggestions that occur to them to the higher officials of the business, without the intervention of overseers and foremen, who might be actuated by motives of jealousy towards them; and for rewarding with prizes and premiums such suggestions as it is decided to adopt. (Cf. Gilman, A Dividend to Labour, p. 230; Rowntree, Industrial Betterment, p. 31, and Meakin, Model Factories and Villages, p. 322.) In Van Marken's establishment a premium is given for "evidences of good-fellowship and co-operation, thus encouraging those whose behaviour conduces to the smooth working of the concern" (Meakin, Model Factories and Villages, p. 315).

84. [84] Sargant Florence, Use of Factory Statistics in the Investigation of Industrial Fatigue, p. 72.

85. [85] La Crise et l'èvolution de l'agriculture en Angleterre, pp. 99-100.

86. [86] Cf. post, Chapter XV. § 2.

87. [87] Of course, this statement does not hold good of "collective piece-wages," where each man's pay depends upon the output of the whole group of which he forms a part. When the group is very small, some inducement to exertion is offered by this form of piece-wage, but, when the group is large, practically none.

88. [88] It may be noted that, if piece-wages were substituted for time-wages throughout industry generally, with the result that a large increase of effort was put out by workpeople, the value per unit of workpeople's effort would by that fact be slightly depreciated, and, therefore, the payment for a given effort and output would have to be slightly less than before. Thus, if under time-wages at 1s. an hour two pieces had normally been produced, so that 6d. was paid for each, under a general system of piece-wages the basis of adjustment would have to be slightly less than 6d. per piece. When, however, a change from time to piece-wages is accomplished in one industry only, the effect in this direction (after the distribution of workpeople among different industries has been adjusted) will, in general, be very small.

89. [89] McCabe, The Standard Rate in American Trade Unions, pp. 224-5.

90. [90] These plans can conveniently be represented by the following formulae, which are convertible into those printed by Schloss in the Journal of the Royal Economic Association for December 1915.

Let W be the standard wage, P the standard output, w the actual wage earned by a workman, and p the actual output of that workman:

Then the general formula for the Halsey plan is

when n is any integer. In the particular variety of this plan employed in Mr. Halsey's works, n has the numerical value 2. The general formula of the Rowan plan is

when f'(p) is negative.

In the particular variety of this plan employed in the Rowan works f'(p) is given the value P/p: and the maximum value to which w can attain is, therefore, 2W. In England, but not in Germany, plans of this type are usually associated with the guarantee of a minimum time-wage irrespective of output; that is to say, when p is < P, the formula is not applied, but the standard wage W is paid.

91. [91] Cf. Chapman, Work and Wages, vol. ii. pp. 184-5.

92. [92] Rowan Thomson, The Rowan Premium Bonus System, p. 12.

93. [93] Report on Works Committees, 1918, p. 11.

94. [94] Cf. Report on Works Committees, 1918, pp. 37-8.

95. [95] For an excellent discussion of this subject cf. Webb, The Works Manager To-day, chap. vi.; also D. H. Cole, The Payment of Wages, passim. There is some evidence that "in Germany the strong antagonism to piece-work shown by organised labour in the early days of the German Republic is being displaced by a tendency to welcome its introduction, even in industries such as stone-cutting and the metal trades, in which it was formerly either quite excluded or bitterly opposed. According to the Reichs-Arbeitsblatt, this change of attitude is to be attributed, in the main, to the fact that the workers (under Article 165 of the German Federal Constitution) co-operate, on equal terms with the employers, in the regulation of wages conditions; and that Section 78 of the Works Council Act of 1920 specifically grants to the Workers' Council (or the Works Council, as the case may be) the right to supervise the application of collective agreements, or, where these do not exist, to co-operate with the employer in the fixing of piece-rates or the bases thereof. Similar provisions have been inserted in a large number of collective agreements. Thus the workers have both a statutory and, in many cases, a contractual guarantee that a piece-work system accepted by them shall not be applied in a one-sided fashion in favour of the employer, but that the proceeds of any increased output shall be shared by them also" (Labour Gazette, November 1922, p. 440).

96. [96] It should be noted that, in effect, a very stringent form of this method is employed as regards the number of hours during which workpeople work per day; for, if a man is not willing to work the regular factory day, he will not be employed at all and will get no wages. The reason for this is, of course, to be found in technical considerations of factory management. To have different men working in a factory different numbers of hours per day would be a much more serious inconvenience than to have them working with different intensities of effort.

97. [97] Going, Principles of Industrial Engineering, p. 135.

98. [98] Certain investigations into the effect of the Taylor system upon some women employed under it do not suggest that this evil possibility has been realised in fact (Quarterly Journal of Economics, 1914, p. 549). But Mr. Hoxie (Scientific Management and Labour, pp. 44 et seq.) is less optimistic upon this point. He writes: "As a matter of fact, time study for task setting is found in scientific management shops in all its possible variations, both with reference to methods and results. In some the highest standards are maintained in regard to all the factors enumerated—all or a large proportion of the workers are timed, the largest practicable number of readings is made, cordial relations are established between the time study man and the workers, and the latter are cautioned against speeding up when being timed, and, if doubt remains, the allowances are purposely made large to cover all possible errors. Liberality of the task is the keynote. In other shops the maximum task is just as surely sought, and the method is warped to this end. The swiftest men are selected for timing, they work under special inducements or fear, two or three readings suffice, allowances are disregarded or cut to a minimum. The task of 100 per cent efficiency is to all intents and purposes arbitrarily fixed, sometimes practically before the time study, at what it is judged the workers can be forced to do. The main use of the time study is to prove to the workers that the task can be done in the time allowed" (loc. cit. p. 53).

99. [99] Thus Mr. Cadbury writes of piece-wages: "If properly trained, the worker will try to find the quickest method of work, and the one involving the least strain; and it has been found that, when a piece-rate has been fixed where previously there had been a time-basis, the output has doubled without any undue strain on the part of the worker, largely as the result of adopting better methods. This especially applies to hand processes" (Experiments in Industrial Organisation, p. 142).

Part III, Chapter IX

1. [1] Jackson, Report on Boy Labour, Royal Commission on the Poor Laws, Appendix, vol. xx. pp. 9-10.

2. [2] Jackson, Report on Boy Labour, Royal Commission on the Poor Laws, Appendix, vol. xx. p. 161. The general tendency of children to enter their parents' trades is illustrated by a very interesting special inquiry undertaken by Prof. Chapman and Mr. Abbot in the neighbourhood of Manchester (Statistical Journal, May 1913, pp. 599 et seq.).

3. [3] Jackson, Report on Boy Labour, Royal Commission on the Poor Laws, Appendix, vol. xx. p. 31.

4. [4] Psychology and Industrial Efficiency, pp. 54-5.

5. [5] Cf. Sir Sydney Chapman's observation: "Certain occupations cannot be entered by any adequate number of people until they have nearly attained their full strength; for instance, the occupations of manual workers on the railways, navvies, and dock labourers, and certain occupations in the building trades. This means that other callings must employ more young people than they can permanently find room for, unless some young people in search of work are to be left standing idle in the market-place. But to seek to obviate this tendency by making each industry more self-contained would not be a very wise proceeding, because it is poor economy to have a man doing a lad's work, or a lad doing a man's work, and from the operation of a certain amount of selection among the labour forces of the community productive efficiency results.... It may be that the partial cul-de-sac employment is a necessary part of a highly developed industrial system. If this is so, the establishment of labour-training institutes becomes doubly necessary, and an added importance attaches to Labour Exchanges with special reference to the claims of the rejected of certain trades, whom it is essential to deal with before they become demoralised or suffer in vigour or spirit" ("Industrial Recruiting and the Displacement of Labour," Proceedings of the Manchester Statistical Society, 1913-14, pp. 122-3).

6. [6] Munsterberg, Psychology of Industrial Efficiency, p. 126. Initial testing of capacity is, perhaps, not very important among workpeople who begin their career in large and varied establishments, where employees found unsuitable for the job they first select can be rapidly transferred to other jobs. Of firms which follow Mr. Taylor's doctrine of scientific management it is said that, "by a careful study of each individual of a group of men in any department, it may be found that many are not physically or temperamentally adapted to performing the particular functions required in that department, and that they are adapted to the performing of functions in some other department. There follows a redistribution of men between departments, with the result that, without an increase in aggregate energy expended, there is an increase in aggregate productivity. It is the scientific method of adapting instrument to purpose" (Tuck School Conference, Scientific Management, p. 6). But in comparatively small and homogeneous establishments—and these employ a very large proportion of the world's workers—"the working man who is a failure in the work which he undertook would usually have no opportunity to show his strong sides in the same factory, or at least to be protected against the consequences of his weak points. If his achievement is deficient in quality or quantity, he generally loses his place and makes a new trial in another factory under the same accidental conditions, without any deeper insight into his particular psychical traits and their relation to special industrial activities" (Munsterberg, Psychology of Industrial Efficiency, p. 121).

7. [7] These considerations enable us to perceive that, though, when the distribution of labour between places or firms is right, a large labour turn-over is a social waste, when the distribution is wrong, it may be a means of overcoming social waste.

8. [8] Select Committee on Home Work Report, 1908, p. viii.

9. [9] Cf. C. D. Wright's account of some American systems of company stores in regions remote from ordinary shops (The Industrial Evolution of the U.S.A., pp. 282 et seq.).

10. [10] Report of the Select Committee on the Truck Acts, p. 6. This provision can be evaded by a company establishing a provision store and informally putting pressure on its workpeople to buy there. The French law of 1910 meets this danger by forbidding any employer to "connect with his establishment any store at which he shall sell directly or indirectly to his employees or to their families provisions or goods of any description whatever" (Labour Gazette, May 1910, p. 156).

11. [11] Report of the Select Committee on the Truck Acts, p. 9.

12. [12] Thus, the Committee find that some deductions in respect of fines may be useful to secure discipline, and suggest that abuse be guarded against by a statutory provision that "the maximum fine or accumulation of fines in any one week permissible by law shall not exceed 5 per cent of the wages of the worker" (p. 29). Deductions for damage to materials and so on they hold may be usefully employed to prevent waste, under an arrangement, say, for charging for the material as given out and adding the value of it to the wage for the work in which it is afterwards incorporated (p. 41). Still, they conclude that, in view of the liability of such charges to become fraudulent, they should be prohibited, subject to a power of the Home Secretary to relax the prohibitions in special cases (e.g. of costly material). The Committee further hold that the general provisions of the Truck Acts should be extended to outworkers (p. 78). They discuss, but do not definitely recommend, rules prohibiting employers from making it compulsory for their hands to live in houses provided by them (p. 53). The real objection to such compulsion is, not so much that it may enable employers to veil the facts about real wages, as that it may enable them to put undue pressure on employees in times of strike.

13. [13] Cf. ante, p. 138.

14. [14] Cf. Booth, Life and Labour, Industry, vol. v. pp. 43 and 49. In like manner, Lord Dunraven observes that "Ireland has a larger population of aged than any other country in the king's dominions" (The Outlook in Ireland, p. 21). It must be noted, however, that we cannot infer decay or expansion unreservedly from such considerations, because, in some industries, the normal age distribution differs widely from the average. Messengers are young men who expect to become something else, and lightermen are generally retired sailors. Furthermore, some industries have an abnormal proportion of old workers, simply because they are abnormally healthy or attract abnormally healthy people.

15. [15] De Foville, Transformation des moyens de transport, p. 396. There is an exactly analogous phenomenon in the movement of capital between countries. People in the United States can move a given capital to Central or South America, and at the same time people in England move an equal capital to the United States at a less aggregate cost in uncertainty—because of differences of local knowledge—than that at which Englishmen could move that capital to Central or South America direct. Hence, this roundabout method of investment in fact occurs. (Cf. C. K. Hobson, The Export of Capital, pp. 29-32.)

16. [16] Cf. Mahaim, Les Abonnements d'ouvriers, p. 170.

17. [17] Llewellyn Smith, The Mobility of Labour, p. 19.

18. [18] La Question ouvrière en Angleterre, p. 334. Cf. also Marshall, Principles of Economics, pp. 207 and 258.

19. [19] Report of the Royal Commission on the Poor Laws, p. 406.

20. [20] Cf. Cannan, The Reorganisation of Industry (Ruskin College), Series iii. p. 11.

21. [21] Cf. Muckerjee, The Foundations of Indian Economics, p. 323.

22. [22] Cost of Living of the Working Classes [Cd. 3864], p. 284.

23. [23] Principles of Economics, footnote to p. 715.

24. [24] Cannan. Wealth, p. 206.

25. [25] The Round Table, March 1916, p. 275.

26. [26] Cf. post, Chapter XIV. § 10.

27. [27] Report of the Royal Commission on the Poor Laws, p. 401.

28. [28] This conclusion involves the verbally inconvenient result that the ideal distribution of labour, when brought about in certain ways, is not the best possible distribution. Confusion will be avoided, however, if we recollect that the distribution we have called ideal, namely, that which, subject to the qualifications of § 2, makes the values of the marginal net products of labour everywhere equal, is only ideal in an absolute sense. It is the best distribution accessible to a man who has unlimited power over all relevant circumstances, and can, therefore, at will abolish costs of movement. But it is not the best distribution accessible to one who must accept the costs of movement as brute fact, and has, therefore, to aim at maximising the national dividend subject to that limiting condition. Cf. ante, Part II. Chapter V. § 6.

Part III, Chapter X

29. [29] Royal Commission on the Poor Laws, Minority Report, p. 1125.

30. [30] Unemployment in the London Building Trades, p. 133.

31. [31] Royal Commission on the Poor Laws, Minority Report, p. 1125.

32. [32] [Cd. 2304], p. 65.

33. [33] Ibid. p. 93.

34. [34] For an account of the introduction of the new policy at the Docks after the strike of 1889, cf. Report of the Royal Commission on the Poor Laws, p. 356. Sir William Beveridge summarises the changes introduced thus: "Formerly each of the forty-seven departments of the Company's work was a separate unit for the engagement of men; each department had its insignificant nucleus of regular hands and its attendant crowd of more or less loosely attached casuals; 80 percent of the work was done by irregular labour. Now the whole Dock system is, so far as the Company's work goes, the unit for the engagement of men; 80 percent of the work is done by a unified staff of weekly servants directed from one spot to another by a central office" (Beveridge, Economic Journal, 1907, p. 73).

35. [35] Report of the Committee on Distress from Want of Employment, Evidence by Aves, Q. 10,917.

36. [36] Report of the Transvaal Indigency Commission, p. 135.

37. [37] Royal Commission on the Poor Laws, Majority Report, p. 403.

38. [38] Report of the International Labour Office on Remedies for Unemployment, 1922, p. 70.

39. [39] Cf. Report of the Committee on the Work of Employment Exchanges, 1920, p. 13.

40. [40] Beveridge, Contemporary Review, April 1908, p. 392.

41. [41] Cf. National Insurance Act, § 99 (1).

42. [42] Labour Gazette, May 1923, p. 161.

43. [43] Cf. Schloss, Economic Journal, 1907, p. 78; Bulletin de l'Association pour la lutte centre le chômage, Sept. 1913, p. 839; and the Report of the Committee on the Work of the Employment Exchanges, 1920, p. 13.

Part III, Chapter XI

44. [44] It is to be expected, therefore, that the turn-over of labour will, in general, be lower for skilled than for unskilled workers. For evidence that this is so in the United States cf. Schlichter, The Labour Turn-over, pp. 57-64. But cf. also ibid. p. 73.

45. [45] Cf. Fay, Co-partnership in Industry, p. 90.

46. [46] Webb, Seasonal Trades, p. 43.

47. [47] Ibid. p. 23.

48. [48] Third Report of the Committee on Distress from Want of Employment, Evidence, Q. 4540.

49. [49] Third Report of the Committee on Distress from Want of Employment, Evidence, Q. 4541 et seq.

50. [50] Report on the Cost of Living in German Towns [Cd. 4032], p. 522.

51. [51] Report of the Royal Commission on the Poor Law, p. 1156, footnote.

52. [52] Report on Collective Agreements, 1910, p. xxviii.

53. [53] Cf. Chapman, Unemployment in Lancashire, p. 51. When a firm employs both factory workers and home workers, it is, of course, to its interest in bad times to withdraw work from home workers rather than to reduce factory work and home work equally, because it is thus enabled to keep its machinery going. It may be added that the power to treat home workers in this way indirectly checks employers from superseding home work altogether by factory work, because it enables them to face the prospect of periodic expansions without the need of erecting factories too large for the demand of ordinary times. (Cf. Vessilitsky, The Home Worker, p. 3.)

54. [54] Of course, it is not meant that in these trades no short time is known. On the contrary, even when the dismissal method is adopted for contractions of work from below the normal, what is, in effect, the short-time method is always adopted to some extent for contractions from above the normal. Thus, in the engineering trade, whereas the average amount of formal short time is very small, overtime adds on the average 3¾ per cent to the normal man's working time (Cd. 2337, p. 100), and, as against overtime working, normal hours are, of course, really short time. All that is meant is that "the main method by which these industries adjust themselves to a change in demand is by throwing out workers or taking on more workers" (Llewellyn Smith, Third Report of the Committee on Distress from Unemployment, Evidence, Q. 4540).

55. [55] Economic Review of the Foreign Press, July 22, 1921, p. 190.

56. [56] The interval is probably partly due to resistance made possible by savings, the pawning of household goods, children's earnings, etc.; partly to the fact that a check to the inflow of pauperism will not involve a diminution of pauperism until the inflow falls below the outflow brought about by death and other causes. (Cf. Beveridge, Unemployment, p. 49.)

57. [57] Hunter, Poverty, p. 3.

58. [58] Beveridge, Unemployment, p. 50.

59. [59] Economic Journal, 1910, p. 518.

60. [60] Répartition des richesses, p. 612.

61. [61] In Belgium the cheapness of workmen's tickets on the railways enables many workers to live in cottages with gradens attached to them, to the cultivation of which they turn when out of ordinary work. (Cf. Rowntree, Unemployment, p. 267.)

62. [62] Quoted in the Minority Report, p. 1138. It has been abundantly proved, however, that the aggregate consumption of drink in the United Kingdom is greatest in periods of good employment, for the reason, no doubt, that good employment is usually associated with high spending power among the people generally. Cf. A. D. Webb, "The Consumption of Alcoholic Liquors in the United Kingdom" (Statistical Journal, Jan. 1913), and Carter, The Control of the Drink Trade, pp. 90-94. It does not follow, of course, that those who are actually unemployed must drink less than they did when employed.

63. [63] Alden, The Unemployed, a National Question, p. 6.

64. [64] Report of the Transvaal Indigency Commission, p. 120.

65. [65] Some evidence before the Unskilled Labour Committee of the C.O.S. relates how an attempt to convert casual dockers into permanent hands failed through the men refusing to turn up regularly (Report, p. 183).

66. [66] United States Bulletin of the Bureau of Labour, No. 79, pp. 906-7.

67. [67] For an account of the work of the Cotton Control Board during the war, cf. H. D. Henderson, The Cotton Control Board. In August 1918, the rota system, which had been established in September 1917, was abolished, and it was decided that the proceeds of the special levy should, henceforward, only be used for giving out-of-work pay to men played off definitely and continuously. The Jute Control in March 1918 introduced a scheme for compensating workers dismissed owing to a decision to stop certain machinery with a view to reducing jute consumption by 10 per cent. But the compensation was specifically confined to workpeople who were not able to find other employment, and any workman who refused suitable employment without reasonable cause was to receive no further benefit (cf. Labour Gazette, 1918, p. 135). A similar condition was made in a plan adopted in Germany at about the same time for compensating workpeople whose work was stopped through shortage of coal (Labour Gazette, 1918, p. 141).

68. [68] Under the British Insurance Act of 1927 an applicant for benefit may be asked to accept work, under suitable conditions, in an occupation other than his own; but naturally this is only likely to be done as a last resort.

69. [69] Cf. The Third Winter of Unemployment, by Dr. Bowley and others, pp. 24-5.

Part III, Chapter XII

70. [70] Cf. Mény, Le Travail á domicile, p. 173.

71. [71] The Australian Trade Marks Act of 1905, which directed that all goods sold should be marked with a label, showing whether or not their makers employed Union labour exclusively, was ruled by the High Court to be unconstitutional, on the ground that the Federal title to legislate about trade marks did not permit legislation in respect of marks not designed for the benefit of the manufacturer using them (Economist, Sept. 19, 1908, p. 532).

72. [72] Report of the Fair Wages Committee, p. 50. Unless the requisition that contractors shall pay standard wages is made to apply to all their work, and not merely to their work on particular contracts, unscrupulous contractors can evade it by employing the same men for part of their time on contract work at full wages and for another part of their time on other work at exceptionally low wages.

73. [73] In this connection it is interesting to observe that the State Wages Boards of California, Oregon, Washington and Wisconsin are given power to regulate, not merely wage rates, but also hours of work and "conditions of labour" for the women whom they cover (The World's Labour Laws, Feb. 1914, p. 78).

74. [74] Mr. Lloyd writes: "The chief reason why the grinders both in Sheffield and Solingen have been better organised than the cutlers is that they are more congregated at their work" (Economic Journal, 1908, p. 379).

75. [75] It is sometimes suggested that the law could be enforced more easily if the giver-out-of-work, or even the landlord, as well as the employer, in a domestic workshop, were made legally responsible for breaches of the law. (Cf. Webb, Evidence before the Royal Commission on Labour [C. 7063-1], Q. 3740.) In Massachusetts responsibility is sometimes thrown on the giver-out-of-work.

76. [76] Cf. the difficulties experienced in New Zealand and Victoria in enforcing the law limiting the hours of shop assistants. In New South Wales these difficulties are partly avoided by means of a general law regulating the hours for all shops, whether employing assistants or not. (Cf. Aves, Report on Hours of Employment in Shops, p. 12.)

77. [77] Mrs. Macdonald, Economic Journal, 1908, p. 142.

78. [78] Cf. Vessilitsky, The Home Worker, chap. vii.

79. [79] Hutchings and Harrison, History of Factory Legislation, p. 269. For evidence as to the favourable reaction of Trade Boards upon organisation in the tailoring trade, cf. Tawney, Minimum Rates in the Tailoring Industry, pp. 90-94.

80. [80] For illustrations of this difficulty cf. Tillyard, The Worker and the State, p. 58.

81. [81] Cf. Tillyard, The Worker and the State, p. 60.

82. [82] Cf. Tawney, Minimum Rates in the Tailoring Industry, pp. 50-51.

83. [83] Cf. Bulkley, Minimum Rates in the Box-making Industry, pp. 21-2.

84. [84] The World's Labour Laws, Feb. 1913, p. 49. A summary of this law and of the similar laws of other American States is given in Marconcini's Industria domestica salariata, pp. 546 et seq.

85. [85] Report of the Royal Commission on the Poor Laws, Appendix, vol. xvii. p. 377.

86. [86] Mr. St. Leger, in his book, Australian Socialism, pp. 394 et seq., prints the judgment of the Supreme Court.

87. [87] Federal Handbook, p. 476. Cf. Bryce, Modern Democracies, vol. ii. p. 245.

88. [88] Cf. Labour Gazette, Jan. 1913, p. 204. By the end of 1923 seventeen States of the U.S.A. bad passed some kind of minimum wage legislation, but decisions of the courts have since that time ruled most of the laws to be unconstitutional. New laws relying on the sanction of public opinion only, have been passed in Massachusetts and Wisconsin (cf. Minimum Wage-fixing Machinery (Intermediate Labour Office, 1927), pp. 113 et seq.; and Report of the Delegation to study Industrial Conditions in Canada and the U.S.A. [Cmd. 2833], 1927, p. 92).

89. [89] Cf. Mitchell, Organised Labour, p. 345.

90. [90] Cf. my Principles and Methods of Industrial Peace, pp. 191-2.

Part III, Chapter XIII

91. [91] Report of the Royal Commission on the Poor Laws, p. 353.

92. [92] Unemployment in the London Building Trade, p. 127.

93. [93] Unemployment, p. 197.

94. [94] U.S.A. Bulletin of Labour, No. 72, p. 761.

95. [95] Ibid. p. 766.

96. [96] Schloss, Report on Agencies and Methods for dealing with the Unemployed, p. 84.

97. [97] Cf. Williams, The First Year's Working of the Liverpool Docks Scheme, chapter i.

98. [98] U.S.A. Bulletin of Labour, No. 72, p. 803.

99. [99] Cf. Schloss, Report on Agencies and Methods for dealing with the Unemployed, p. 87.

100. [100] Report of the Charity Organisation Society's Committee on Unskilled Labour, 1908, p. 170.

101. [101] Cf. Messrs. Pringle and Jackson's Report to the Poor Law Commission, Appendix, vol. xix. p. 15.

102. [102] Report of the Royal Commission on the Poor Laws, pp. 335 and 354.

103. [103] Report on Dock Labour, p. 19.

104. [104] Report of the Royal Commission on the Poor Laws, pp. 410-11.

105. [105] Explanatory Memorandum Cd. 8911, p. 5.

Part III, Chapter XIV

1. [1] If we were considering the relative earnings of all classes in the population, it would be convenient to define as fair the relation which would prevail if not only the conditions postulated in the text were satisfied, but also the inequalities of opportunity for education and training referred to in Chapter IX. § 1 were removed. The discussion as to when interference with what is unfair in this wider sense is socially advantageous would follow the same lines as the discussion in the text. Here, however, we are concerned with fairness inside the wage-earning class where inequalities of opportunity play a comparatively unimportant part.

2. [2] Marshall, Introduction to L. L. Price's Industrial Peace, p. xiii. I have ventured to substitute equal for Marshall's equally rare natural abilities, which does not seem to be quite correct. (Cf. post, Chapter XVI.)

3. [3] Cf. ante, Part II. Chapter II. § 4. As will appear more in detail presently, efficiency thus conceived is not merely a function of a worker's personal quality, but also of surrounding circumstances. But, none the less, other things being equal, an enhancement of physical, mental, and moral strength in general carries with it an enhancement of efficiency. It is necessary to distinguish this use of the term from two other uses. Efficiency does not mean for us, as it means for engineers, the ratio of the output of energy to the intake of fuel, or, in other words, the ratio of the value of a workman's product to his wage. Nor yet does it mean for us, as it means for Mr. Emerson, the ratio of a man's actual output to the output which the tasksetter holds that he ought to be able to produce without undue strain, a man of 100 per cent efficiency being one who produces exactly the allotted task.

4. [4] Cf. post, Chapter XVI.

5. [5] Clause 8 of agreement, U.S. Bulletin of Labour, January 1897, p. 173.

6. [6] Cf. ante, Chapter IX. § 2.

7. [7] Cf. Vessilitsky, The Home Worker, p. 13.

8. [8] It should be noted, however, that, as old employees die off, these costs will disappear; for to young men contemplating a choice between the occupation we are considering and others there will be no costs. Hence, if wages there are still unfairly low after a number of years, this will presumably not be because of costs and the above argument against interference does not apply.

9. [9] Thus, in so far as home workers earn a wage equal to their marginal worth—which is often low because they are in direct competition with machinery of great efficiency—and are prevented from moving into factory work by family necessities, the national dividend, apart from possible reactions on capacity, would be injured by any forcing up of their wage rate.

10. [10] Cf. Appendix III. § 30.

11. [11] Report of the Land Inquiry Committee, 1914, vol. i. p. 40.

12. [12] It is sometimes thought that an employer's power of exploitation is always greater under a piece-wage than under a time-wage system. But this is not so. Workpeople engaged in operations, the pace of which is dependent upon machinery controlled by employers, often prefer piece-wages on the ground that, under that system, they will be subjected to less overstrain through speeding up than they would have to put up with under time-wages. The cotton operatives and the operatives in those sections of the boot-trade where machinery is largely employed appear to take this view. (Cf. Lloyd, Trade Unionism, pp. 92-4.)

13. [13] Webb, Industrial Democracy, p. 675.

14. [14] There is reason to believe that the excessive pressure to which children were subjected under the old factory system was partly due to the fact that overseers were paid piece-wages. (Cf. Gilman, A Dividend to Labour, p. 32.) In like manner, the "sweating" that is sometimes found among the employees of sub-contractors is probably traceable, not to the system of sub-contract, but to the fact that sub-contractors are generally small masters on piece profits.

15. [15] It may possibly be argued against the above analysis that, though an employer may succeed, by bargaining, in forcing upon workmen, other than the man most expensive to him, a wage below the value of their marginal net product, it cannot pay him to treat this man so. For it will be to his interest to go on engaging fresh hands till the wage and the value of the marginal net product of the workman most expensive to him are equal. Hence, it is impossible for any employer who pays to all his workpeople the same efficiency-wage to pay to any of them less than the value of the marginal net product of their work. This argument, however, tacitly assumes that an employer, whom it would pay to engage fresh hands at an exploited wage rate, will be able to do this to an indefinite extent. No such assumption is warranted.

16. [16] It is possible that exploitation may lead the exploited workpeople to do more work than they would have done with better wages, and may thus, despite the considerations that follow, involve an increase in the national dividend. In view, however, of the reactions that are likely to be set up in their capacity, it is very unlikely that an effect of this kind will be permanent. In any event, this sort of increase in the dividend, if it were to come about, nobody would regard as a sufficient atonement for the exploitation. I propose, therefore, while noting here this possible economic disharmony, to ignore it in the body of my argument.

17. [17] It is thus perfectly correct to attribute a portion of the transference from arable to grass farming that has taken place in England since the 'seventies to the low rates of wages driving the labourers off the land. (Cf. Hall, Agriculture after the War, p. 121.) Another and a larger portion of it is, however, due to the cheapening of imported food, which has rendered the employment of British resources in direct food production less profitable relatively to other employments than it used to be. To substitute grass farming for arable farming is merely one way of reducing the resources devoted to food production in this country, as against the production of other things by the sale of which food can be purchased from abroad; for, as Sir A.D. Hall observes, "land [apart, of course, from special sorts of land] under arable cultivation produces nearly three times as much food as when under grass and employs ten times as many men" (ibid. p. 127).

18. [18] Industrial Unrest and the Living Wage, p. 155.

19. [19] Black, Makers of our Clothes, pp. 185 and 192.

20. [20] Cf. Hayes, "The Rate of Wages and the Use of Machinery," American Economic Review, September 1923, pp. 461 et seq.

21. [21] Economic Journal, Mar. 1931, p. 20. In the later age-groups, it may be noticed, alongside of a continuing efflux, there is also a certain reinflux into industry of women whose husbands have died. Sir Sydney Chapman refers to this point in connection with home work, pointing out that much of this work requires only such skill as can be acquired by anybody at any time of life, and is taken up by untrained persons, who "suddenly find it necessary to do something, or have to make money" (Home Work, Manchester Statistical Society, Jan. 1910, p. 93).

22. [22] This analysis may be formulated mathematically as follows:

Let w1 be the rate of women's wages per day,
w2 the rate of men's wages per day.

Then, since the amount of women's labour offered in industry at any given wage depends in part upon the rate of men's wages—being, in general, smaller the larger these are—the supply of women's labour may be written f1(w1, w2). In like manner, the supply of men's labour may be written f2(w1, w2).

And we know that and are positive, and and are negative.

Again, since the amount of women's labour demanded in industry at any given wage depends upon the rate of men's wages—being, in general, smaller the smaller these are—the demand for women's labour may be written 1φ(w1, w2), and the demand for men's labour φ2(w1, w2). And we know that are negative, and and are positive.

The two equations, which suffice to determine our two unknowns, are:

(1) f1(w1, w2) = φ1(w1, w2)
(2) f2(w1, w2) = φ2(w1, w2)

It may be added that, if the proportion of women and men offering work in industry were determined solely by the proportion of women and men in existence, we should have to do with a straightforward problem of joint-supply; for, obviously, the comparative numbers of the two sexes are determined by physiological causes outside the range of economic influences. In these conditions, therefore, both the supply of women workers and the supply of men workers would be functions of one variable, this variable being some symbol of a normal family income, such as (w1, w2). For f1(w1, w2) and f2(w1, w2) we should have to write f(w1, w2) and kf1(w1, w2) and in countries where males and females survive in equal numbers, k would be equal to unity.

23. [23] It is interesting to note that in the European War, while the withdrawal of men from industry for the army naturally tended to raise men's wages relatively to women's wages, the character of the commodities demanded by the public was changed in a way tending in the opposite direction. Ordinary tailoring and munition making, the demand for both of which enormously expanded, appear to be better adapted for women's work than the general run of industries. In the Report of the Conference of the British Association on Outlets for Labour after the War it is suggested that, on the whole, the special war demand of the Government was "a demand for a class of goods in the production of which a greater proportion of women rather than men can be more usefully and economically employed than under normal peace conditions" (Report, 1915, p. 8).

24. [24] It so happens in fact—as indeed is probable a priori—that the range of these marginal occupations is in this country small. The Poor Law Commissioners report: "About four-fifths of the occupied male population are engaged in employments which they monopolise, or in which women are a negligible factor as regards possible competition, such as agriculture, mining, fishing, building, transport, wood, gas and water, and the staple metal and machine-making trades, all of which are virtually male preserves. Only one-fifth of the males are engaged in trades where women enter to the extent of 1 per cent of the whole number of occupied females" (Report, p. 324). Mr. and Mrs. Webb witness to the same effect: "There are a very small number of cases in which men and women compete directly with each other for employment on precisely the same operation in one and the same process" (Webb, Industrial Democracy, p. 506. Cf. also Smart, Economic Studies, p. 118.) When one sex appears to be invading the province of the other, the fact generally is that the process, as well as the workers, is being changed. Thus, machinery and males have come into lace and laundry work: machinery and females into boot-making and tailoring. The Poor Law Commissioners report: "In the boot and shoe trade—which has been distinctively a male industry—women are certainly obtaining a relatively stronger hold, owing to the division of labour which now furnishes certain lighter processes, suitable for women, that were formerly done as part of the general work of male shoemakers. Slipper-making, for instance, is now passing entirely into female hands" (Report of the Royal Commission on the Poor Law, p. 324). Also, on the authority of the Board of Trade inquiry into the Cost of Living of the Working Classes: "The same phenomenon occurs in other fields; for instance, in Sheffield, file-cutting, an occupation which used to be largely done by female out-workers—the work requiring rather dexterity than strength—is now being done by heavy machinery requiring male attendants" (ibid. p. 324). The Commissioners summarise their views thus: "The conclusion is that, while women and juveniles are now engaged in many industries in which the specialisation of machinery enables them to take part, they are not, in any considerable trade or process, displacing adult males in the sense that they are being more largely employed to do work identical with that formerly done by men. The great expansion of women's labour seems to have been in new fields of employment, or in fields which men never occupied. It should also be borne in mind that, even when women are employed where men used to be employed, this is largely due to the men going into more highly paid industries. Mining, machine-making, and building have of late years attracted an abnormal number of men and boys" (ibid. p. 325). This view is fully borne out by what occurred during the European War. The British Association Conference of 1915 on Outlets for Labour after the War reported: "Even during the present time of stress, when women are to a certain extent doing work which would normally be done by men, the work, as shown in the detailed portion of this Report dealing with separate trades, is very rarely similar either as regards process or conditions. With the introduction of women the work has often to be subdivided, and the men generally have at least the arduousness of their work increased, with oft-times the addition of over-time and night-work and a larger amount of work entailing a greater strain. Where workshops have been recently built for women workers, they have been equipped with machines of a different type from what would have been installed had the management been able to procure trained men" (loc. cit. p. 15). Cf. also Report of the War Cabinet Committee on Women in Industry, 1919, pp. 21-2.

25. [25] The scheme of analysis worked out in the text can also be applied to the case in which one class of worker is not more efficient in any job than another class, but is as efficient in some jobs. If the number of persons in this class is more than enough to fill the jobs in which they are as efficient as the others, their wage-rate will, in equilibrium, be less than that of the others, but, if their number is not more than enough for this, their wage-rate will, in equilibrium, be equal to that of the others. In this connection the following passage from Mr. Henry Ford's book My Life and Work is of interest: "The subdivision of industry opens places that can be filled by practically any one. There are more places in subdivision industry that can be filled by blind men than there are blind men. There are more places that can be filled by cripples than there are cripples. And in most of these places the man who short-sightedly might be considered as an object of charity can earn just as adequate a living as the keenest and most able-bodied. It is waste to put an able-bodied man in a job that might just as well be cared for by a cripple" (loc. cit. p. 209).

26. [26] Report of the Royal Commission on the Poor Laws, p. 323.

27. [27] Wealth, p. 206.

28. [28] It is possible to employ the term "unfair" wages in reference to women's wages in a somewhat different sense, and to hold that women's wages in general are unfairly low, because they fall short of what they would have been, were it not that custom and tradition permanently exclude women from certain occupations suited to their powers, and so force some of them to take up work for which they are relatively ill-fitted. As was shown in Chapter IX., the removal of all artificial barriers of this kind would benefit the national dividend. But, so long as the barriers are left standing, reasoning analogous to that employed in § 6 of the present chapter proves that any attempt to force up women's wages towards what they would be if the barriers were removed, will injure the national dividend.

29. [29] Labour Gazette, Sept. 1915, p. 357.

Part III, Chapter XV

30. [30] Cf. for an elaborate attempt on these lines, Gannt, Work, Wages, and Profits, ch. iv. In the Birmingham brass trades "the executive of the National Union of Brass Workers grades each worker according to his ability, and places him in one of seven different classes, for each of which a minimum wage is set by collective bargaining. If an employer challenges the qualifications of any man, a practical examination in the processes of the trade is given him by the manager of the Municipal Brass Trades School" (Goodrich, The Frontier of Control, p.165). This, however, is a very unusual arrangement.

31. [31] Unemployment, p. 124, footnote.

32. [32] Ibid. p. 124. The peculiarity and uncertainty of these arrangements is brought out in Mr. Barnes' evidence to the Poor Law Commissioners: "In the Amalgamated Society of Engineers we do not require a man to shift from one town to another after he is fifty years of age, and, putting it generally, we do not require him to get the standard rate of wages—according to the discretion of the committees who may deal with the matter—after about fifty-five years of age." But the percentage of men who take advantage of this is very small. "In fact, although we allow men to work under the rate at fifty-five years of age, it is rather the case that the men at fifty-five, or even sixty, do not avail themselves of the opportunity. So strong is the sense of discipline in the trade unions, and their sense of loyalty to their fellows, that in most cases a man would rather give up work altogether than accept work at the lower rate. So that, instead of trade unions standing in the way of the men accepting lower rates, the opposite is the fact, and the trade unions rather enourage it" (Evidence of Mr. G.N.Barnes, M.P., quoted in the Report of the Commission, p. 313, footnote).

33. [33] Cf. Broadhead, State Regulation of Labour in New Zealand, p. 66.

34. [34] Cf. Aves. Report on Wages Boards, p. 61, and Raynaud, Vers le salaire minimum, p. 96.

35. [35] The danger of allowing under-rating to become a means of evasion of awards is clearly seen by those in charge of the Acts. "In granting permits, the Chief Inspector is guided by claims based on personal disability of some kind, and not by the exigenoies either of an industry or of a particular business. If conditions have changed, making the applications for permits more urgent on that account, the view is held, very consistently, that the occasion would then have arisen for the reconsideration of its determination by the Board concerned. While the determinations are in force, wages conditions, it is held, should conform to them, and in their power to arrest or postpone a fall some consider that they will in the future prove their greatest value. Such is the hope, but to that form of testing they have not yet been subjected. The point, which it is necessary to emphasise here, is that at such a period the permit is not regarded as the appropriate instrument on which to fall back" (Aves, Report on Wages Boards, p. 63).

36. [36] It should be noted that, when it is a question of an excess of wage sought by particular men above the standard time-wage, the unions under a time-wage system are not in a position to resort to collective bargaining, and that, therefore, the employers' bargaining power is more likely to be superior to the workpeople's than it is as regards the standard itself. (Cf. McCabe, The Standard Rate in American Trade Unions, p. 114.)

37. [37] McCabe, The Standard Rate in American Trade Unions, p. 118 n.

38. [38] Cf. Webb. Socialism and the National Minimum, p. 73.

39. [39] Quarterly Journal of Economics, 1910, p. 678. The tendency of the minimum to become the maximum is, of course, stronger in some circumstances than in others. Thus, Mr. Broadhead writes of New Zealand: "In those trades, in which there is no competition with the outside world, many of the workers, according to their degree of skill, are paid more than the minimum wage fixed by the court, but in others, in which there is competiton with the imported article, the practice of making the minimum the maximum wage is, I believe, pretty general. In the latter case the employers contend that they cannot afford to pay to any worker any more than is fixed by law" (State Regulation of Labour in New Zealand, p. 72).

40. [40] Holland and Barnett, Studies in American Trade Unionism, p. 118.

41. [41] "Minimum Wage Legislation," U.S. Bulletin of Labour Statistics, 1915, p. 136, No. 167.

42. [42] For example, a New Zealand employer told Mr. Aves that "he was alive to the danger of a rigid scale of remuneration, and that to some of his men he was paying 'something extra' a day. But this was done 'on the quiet.' The men are paid in paper and metal currency, the loose coinage being folded in the notes. The array of little packages was shown me. All are paid with great rapidity, and 'no one can tell what any one else receives" (Report on Wages Boards [Cd. 4167], p. 109). In like manner, an English employer told the Charity Organisation Society's Committee on Unskilled Labour: "If one man is better than another, we give him 1s. or 2s. extra at the end of the week. We have to be careful that other men do not know that, or they want to know why. They cannot understand that it is because the man has served us better. You cannot say openly, 'I will give you 2s. more.' The man would be considered a favourite, and he would have a warm time in the stable at night" (Report, p. 109).

43. [43] Cf. for confirmatory evidence from America, Schlichter, The Turnover of Factory Labour, pp. 44-5.

44. [44] Cf. British and Foreign Trade and Industry, Second Series, p. 99.

45. [45] There is evidence that in the industrial depression of 1922 in Great Britain the incidence of unemployment among men, which was, as might have been expected, least between the ages 25-40, was higher in the early twenties than among elderly men. (Cf. Mozley, "The Incidence of Unemployment by Age and Sex," Economic Journal, December 1922, p. 484.) A possible explanation is that men in the early twenties would be those who had been prevented by the war from learning a skilled trade, that the wages of unskilled workers were unduly high relatively to those of skilled workers, and that, therefore, unskilled workers, among whom these young men were abnormally numberous, found it harder to obtain employment than skilled workers. This "explanation" is, however, little better than a guess. It is interesting to note that in 1921 a law was passed in Italy to the effect that, "in the case of dismissals being necessary, preference in the retaining of hands be given to the oldest workmen and to those having the largest families" (Review of the Foreign Press, July 1921, p. 191).

46. [46] Beveridge, Unemployment, p. 72.

47. [47] Report on an investigation into the employment and insurance history of a sample of persons insured against unemployment in Great Britain, 1927; pp. 46-7.

48. [48] Ibid. p. 38.

49. [49] Report of the Transvaal Indigency Commission, p. 121.

50. [50] Cf. ante, Part II. Chap. II. § 4.

51. [51] Report on Standard Price Rates, 1900, p. xiv.

52. [52] Report on Standard Price Rates, 1900, p. xvi.

53. [53] Schloss, Report on Gain-sharing, p. 113. For a detailed account of the arrangements by which piece-scales in the United States are adjusted to variations in the sizes and patterns of products, the materials used and the physical conditions of the work, cf. McCabe, The Standard Rate in American Trade Unions, chapter i.

54. [54] Engineering Magazine, 1901, p. 624.

55. [55] Cf. Hoxie, Scientific Management and Labour, p. 51.

56. [56] Black, Makers of our Clothes, p. 145.

57. [57] Cf. Cole, The Payment of Wages, p. 4.

58. [58] Going, Principles of Industrial Engineering, p. 123.

Part III, Chapter XVI

59. [59] Principles of Economics, p. 162.

60. [60] Ibid. p. 162. footnote.

61. [61] If the produce-curves for two acres are parallel to one another, then, as Marshall shows, whatever the shape of these curves, an increase of demand for the product (say wheat) makes the rentability of the inferior acre a larger proportion than before of the rentability of the other. If the curves are straight lines and one lies above the other throughout its length, the same thing is true, even though the curves are not parallel. If the curves are straight lines and cut one another, it is not true. If they are straight lines and if they coincide initially (i.e.) in respect of the first dose of investment) the ratio between the rentabilities of the two acres is the same in all states of demand. If they are not parallel and are not straight lines, no general statement can be made. These results are easily demonstrated by means of simple diagrams.

62. [62] Biological Fact and the Structure of Society, p. 32.

63. [63] Cf. ante, Chap. XIV. § 1.

Part III, Chapter XVII

64. [64] Loc. cit. pp. 204-214.

65. [65] Bulletin of the U.S. Bureau of Labour Statistics, No. 167, pp. 165-6.

66. [66] Ibid. p. 167.

67. [67] Cf. his interesting book, A New Province for Law and Order. For skilled workers he aimed at adding to the basic wage. "a secondary wage," in the determination of which a dominant part should be played by considerations as to what the trade would bear. It will be noticed that, on Mr. Justice Higgins' principles, the real rate of wages for unskilled workers would never change at all.

68. [68] Cf. Bulletin of the U.S.A. Bureau of Labour, No. 285. These laws, so far as they affect minors, do not stipulate for a wage that shall cover subsistence, but merely for one that is "suitable" and "not unreasonably low."

69. [69] Mr. Rowntree has shown that in York, if a minimum wage based on a family of as many as five dependent children were established, no less than 20 per cent of the children born would be inadequately provided for for five years or more (The Human Needs of Labour, p. 41).

70. [70] The Measurement of Social Phenomena, pp. 179-80.

71. [71] Women's Supplement to New Statesman, Feb. 21, 1914.

72. [72] Chapman, Work and Wages, vol. ii. p. 263. Since the passing of the Industrial Arbitration (Further Amendment) Act of 1918, it is no longer wholly true, for New South Wales, that agriculture is untouched by the arbitration laws.

73. [73] Labour Gazette, March 1923, pp. 86-7.

74. [74] Ibid. p. 86.

75. [75] Cf. Rathbone, Economic Journal, 1920, p. 551.

76. [76] Cf. Heimann, "The Family-Wage Controversy in Germany," Economic Journal, December 1923, p. 513. For an account of "family-wage" arrangement in France, cf. Douglas, "Family Allowances and Clearing Funds in France," in the Quarterly Journal of Economics, February 1924. An interesting discussion of family wages and alternative forms of family endowment is contained in Miss Rathbone's book, The Disinherited Family. Cf. also Cohen, Family Income Increase.

77. [77] For an account of this Act cf. The Quarterly Journal of Economics, May 1928, pp. 500 et seq.

Part III, Chapter XVIII

78. [78] Cf. Tawney, Minimum Wages in the Tailoring Trade, pp. 121-34; and Bulkley, Minimum Wages in the Box-making Trade, p. 51. In the box-making industry the workpeople's capacity has also been benefited in an indirect way, because the enforcement of higher rates has induced employers to pay more attention to their training; "every worker has to be trained to earn the minimum, whereas formerly it did not matter how little they earned" (loc. cit. p. 51).

Part III, Chapter XIX

79. [79] Aves, Report on Wages Boards, p. 88.

80. [80] Labour Gazette, March 1909, p. 103.

81. [81] Cf. Aves, Report on Wages Board, p. 88; and Raynaud, Vers le salaire minimum, p. 335.

82. [82] Ibid. p. 88.

83. [83] The World's Labour Laws, Feb. 1914. p. 47.

84. [84] Cf. Douglas, American Economic Review, December 1919, p. 709. Cf. also Bulletin of the U. S. Bureau of Labour, No. 285, pp. 22 et seq.

85. [85] Cf. post, Part IV. Chapter III. § 8.

Part III, Chapter XX

86. [86] It may be suggested that under a piecework system this device is impracticable, since a given wage bears the same relation to a given output, whoever the worker may be. But (1) equal pieces are not always of the same quality, and are not always obtained with the same amount of injury to the employer's property (e.g. in coal-mining, a ton of coal badly cut may damage the general conditions of the mine in the neighbourhood); and (2) even when two pieces are similar in all respects, one man, in finishing his, may occupy the fixed plant of his employer for a longer time than his neighbour.

87. [87] Since on the overtime plan workpeople get less money and, therefore, the marginal utility of money to them is slightly higher, the amount of work forthcoming under the overtime plan should in strictness be slightly larger than under the other.

88. [88] Report on the Cost of Living in German Towns [Cd. 4032], p. 521.

89. [89] Economic Journal, 1903, p. 194.

90. [90] This is the advice given him by Smart, Sliding Scales, p. 13. It may be noted that the pawn-shop and the power to get credit afford, for short periods of unemployment, a partial, though sometimes an injurious, substitute for saving.

91. [91] Cf. for illustrations, L. L. Price, Industrial Peace, p. 80.

92. [92] Cadbury, Women's Work and Wages, p. 93.

93. [93] Bowley, Elements of Statistics, p. 305.

94. [94] Le Chômage et la profession, pp. 336-7. M. Lazard adds: "A ce premier avantage, proper aux grandes enterprises, du fait de leur organisation commerciale, il s'en ajoute d'autres, résultant du mechanisme de la production. Lorsque la direction de l'industries est concentrée dans un petit nombre de mains, les chefs d'enterprises connaissent le marché; qu'ils fournissent mieux que ne font, dans leurs sphères respectives, les petits ou moyens entrepreneurs des autres branches industrielles. Sachant sur qualle consommation ils penvent compter, ils règlent leur production en conséquence... Notre hypothèse demanderait d'silleurs à être vérifiée, car plus d'une industrie fait apparemment exception à la règle indiquée; on remarque, par exemple, que l'agriculture, l'industrie humaine par excellence, est assez épargnée par le chomage, bien que l'effectif moyen des établissements y soit trèduit. Il semble que l'on puisse attribuer cet état de choses au fait que les débouchés sont plus stables dans l'agriculture que dans l'industrie proprement dits; en outre, le nombre des entreprises agricoles est naturellement limité par l'inextensibilité de la surface cultivée" (ibid. pp. 337-8).

95. [95] Ibid. p. 337.

96. [96] Report, p. x.

97. [97] Industry, v. p. 253.

98. [98] "Steadying Employment," Annals of the American Academy of Political Science, May 1916, pp. 6-7.

99. [99] Cf. Price, Industrial Peace, p. 97.

100. [100] Cf. Marshall, Economics of Industry, p. 381 n.

101. [101] Cf. Dearle, Economic Journal, 1908, p. 103.

102. [102] Cf. Committee on Distress from Want of Employment, Q. 4580.

103. [103] Cf. Sheriff Jameson's award in a shale-miners' arbitration (Economic Journal, 1904, p. 309).

104. [104] When specialisation, either to trade or place, is very high, the labour supply will, for considerable variations of wage, remain practically constant. The workman may know that his skill is useless in other districts or occupations, and may, therefore, be driven to accept a great drop in wages before leaving. Nor (except for navvies and other labourers, the muscular character of whose work makes it specially dependent upon their nourishment) need his capacity suffer appreciably. Thus the supply may be perfectly inelastic. It may also be inelastic on account of conservative feeling among the workers affected. For example, Dr. Clapham writes of the decline of the hand-loom industry: "The independence and professional pride of the old race of weavers made them hate the thought of the factory, and stick to their home work with a tenacity that, in the long run, did them no good" (Bradford Textile Society, June 1905, p. 43).

105. [105] Statistical Journal, Dec. 1904, p. 635.

106. [106] These considerations justify the establishment, in connection with sliding scales, alike for skilled and unskilled work, of a minimum wage uncompensated by any corresponding maximum.

107. [107] This consideration affords an argument in favour of the device of the "double-jump" after a certain point has been reached, which found a place in a former scale in the South Wales coal industry and also in certain English sliding scales.

108. [108] Cf. Industrial Negotiations and Agreements, published for the Trade Union Congress, 1922, pp. 46 et seq.

109. [109] Cf. Ashley, Adjustment of Wages, pp. 56-7.

110. [110] Chapman, "Some Theoretical Objections to Sliding Scales," Economic Journal, 1903, p. 188.

111. [111] Schultze-Gaevernitz, Social Peace, p. 160.

112. [112] Mr. L. L. Price, in discussing these negotiations, speaks of a "profits" scale in the cotton trade as a "closer approach to the conception of profit-sharing than that made by the usual type of sliding scale" (Economic Journal, 1901, p. 244). The view appears to be erroneous, so long as the "profits" of the representative firm are taken as the index. Of course, a system which should make the wage paid by individual firms fluctuate with their own particular "profits" would be an entirely different thing.

113. [113] Scales based, like several post-war scales, solely on the "cost of living" index are inadequate because they ignore changes in demand. Scales of this sort were adopted in 1922 in the wool, hosiery, cable-making, paper, and several other industries (Industrial Negotiations and Agreements, Trade Union Congress, 1922, p. 22).

114. [114] Report on Collective Agreements [Cd. 5366,] 1910, p. 32.

115. [115] Report on Collective Agreements [Cd. 5366,] p. 27.

Part IV, Chapter I

1. [1] That is to say, without injuring it either from the point of view of the period before the change or from the point of view of the period after the change. Cf. ante, p. 54.

Part IV, Chapter II

2. [2] Cours d'économie politique, ii. pp. 306-7.

3. [3] Manuale di economia politica, p. 371.

4. [4] Cours d' économie politique, ii. p. 324.

5. [5] Ibid. p. 408

6. [6] Cf. ante, p. 96.

7. [7] Select Committee on the Income Tax, 1906, Evidence, p. 81.

8. [8] Cf. Benini, Principii di statistica metodologica, p. 810.

9. [9] Of course it is not suggested that the inheritance laws of all modern European countries are exactly identical. They differ considerably in detail. The French laws, for example, force a more even division of estates among children than the English laws and deny special privileges to the eldest son. It is interesting to connect this fact with the observation of Benini (Principii di statistica metodologica, p. 191), that the distribution of wealth is more even in France than it is here. (Cf. also Ely, Property and Contract, vol. i. p. 89.)

10. [10] Loc. cit. pp. 370-71.

11. [11] The Growth of Large Fortunes, p. 18.

12. [12] Proceedings of the Manchester Statistical Society, 1924-26, pp. 64-5. For a useful summary of the available statistics concerning income and capital distribution, cf. Carr-Saunders and Jones, Social Structure in England and Wales (1927), chapters ix. and x.

13. [13] Principii di statistica metodologica, pp. 836-7.

14. [14] Manuale di economia politica, pp. 371-2.

Part IV, Chapter III

15. [15] Bowley, The Division of the Product of Industry, p. 12.

16. [16] Ibid. p. 11.

17. [17] Cf. Chiozza-Money, Riches and Poverty, p. 49.

18. [18] The special case of the entrepreneur's earnings is discussed in detail by Professor Edgeworth in the Quarterly Journal of Economics for February 1904; it is also touched upon in his paper on "Mathematical Theories" in the Economic Journal of December 1907.

19. [19] This idea is well expressed by Turgot in an elaborate figure (cf. Cassel, Nature and Necessity of Interest, p. 22). In illustration, it may be noticed that, as the rate of interest falls, instrumental goods come to be built more solidly and to be repaired and renewed more readily when need arises.

20. [20] The significance of this qualification is that, in a given state of the other factors, an increase in the supply of one factor up to the amount required to provide a single group-unit on the optimum scale—e.g. a sufficient number of men to lift a heavy tree or a sufficient number to run one factory of optimum size in each occupation—need not yield diminishing returns. It is not relevant to the present argument that an increase in the scale of population, by generating closer contacts and mutual stimulation of thought, may indirectly lead to an increase in the supply of capital and to improved organisation, and that, therefore, output may increase in a larger proportion than population. The law of diminishing returns is concerned with the effects of an increase in the supply of one factor of production when the supply of other factors is not increased.

21. [21] Professor Taussig wrote in 1906 that, whereas most money incomes in the United States have increased, "the wages of ordinary day labour and of such factory labour as is virtually unskilled seem to have remained stationary and sometimes seem even to have fallen" (Quarterly Journal of Economics, 1906, p. 521). Whether the unskilled immigrants are mainly rival or mainly co-operant with the skilled workers of America is another and more difficult question. Dr. Hourwich writes on this point: "It is only because the new immigrants have furnished the class of unskilled labour that the native workmen and older immigrants have been raised to the plane of an aristocracy of labour" (Immigration and Labour, p. 12). In the same sense Prof. Prato (Le Protectionisme ouvrier, p. 72) maintains that, in general, the low-grade immigrant takes on occupations which native-born workpeople wish to leave, and that this is true, not only of the Chinese and European immigrant into the United States, but also of the Italian and Belgian immigrant to France, Switzerland, and Germany.

22. [22] It is not relevant to the present argument to note, though the point may be added for completeness, that, in response to the improved demand, the co-operant factors tend to increase in quantity, but, since their supply curve is inclined positively, not to a sufficient extent to reduce their receipts to the old level.

23. [23] Cf. Marshall, Royal Commission on Labour, Q. 4237-8.

24. [24] Principles of Economics, p. 540.

25. [25] "The Export of Capital and the Cost of Living," Manchester Statistical Society, Feb. 1914, p. 78.

26. [26] The general proposition, of which the statement in the text is a special instance, is that, other things being equal, an increase in the quantity of any one factor of production will be accompanied by an increase in the absolute share of product accruing to that factor, provided that the demand for the said factor has an elasticity greater than unity. The condition on which it will be accompanied by an increase in the proportionate share of product accruing to the factor is different from this, and can be determined as follows. The supply functions of the other factors being given, the aggregate output P depends on the quantity of the variable factor, in such wise that, if x represents this quantity, P=f(x). The absolute share accruing to the variable factor is, therefore, represented by xf', and the proportionate share by xf'/f. The condition that this latter magnitude shall increase when x increases is that

is positive.

Let e represent the elasticity of demand for the factor in question. Then

and the above condition can be expressed, by easy substitution, in the form

Thus e exceeds unity by a larger amount, the larger is the proportionate share of the product accruing, before the variation, to our variable factor. The condition set out above in symbols can be expressed in words, as Dr. Dalton has pointed out, by the statement that "the elasticity of demand is greater than the reciprocal of the relative share of all other factors taken together" (The Inequality of Incomes, p. 187).

27. [27] The term elasticity of demand, as employed by Marshall and in the text above, signifies proportionate change in quantity divided by proportionate change in price when the changes are very small (strictly infinitesimal). It is what Dr. Dalton calls "point elasticity" (cf. The Inequality of Incomes, pp. 192-7). Hence, in order that the argument of the text may hold good of substantial increases of supply, we must suppose that the elasticity of demand is greater or less than unity, as the case may be, not merely in respect either of the old or of the new quantity of supply, but also in respect of all the quantities intermediate between these two.

28. [28] Cf. Marshall, Principles of Economics, p. 235.

29. [29] Cf. Edgeworth, "On the Use of the Differential Calculus in Economics," Rivista di Scientia, vol. vii. pp. 90-91.

30. [30] Cf. Marshall, Principles of Economics, p. 672.

31. [31] Report of the Royal Commission on the Aged Poor, p. 72.

32. [32] Royal Commission on the Aged Poor, Minutes of Evidence (Q. 10,880).

Part IV, Chapter IV

33. [33] Hobson, The Industrial System, p. 281.

34. [34] Salariat et salaires, p. 421.

35. [35] Report, p. 344.

36. [36] Nature and Necessity of Interest, p. 112.

37. [37] Report of the Royal Commission on the Poor Laws, p. 309.

38. [38] La Répartition des richesses, p. 37.

39. [39] La Répartition des richesses, p. 440.

40. [40] Cf. Principles of Economics, p. 541.

41. [41] This statement is not incompatible with the facts (1) that the resources devoted to making the motor car itself are turned into "capital" uses, and (2) that the existence of a private motor car of given value may tend to push up wages (by drawing people into service with it away from other employment) as much as the existence of a machine employed in industry.

Part IV, Chapter V

42. [42] Report on Wages Boards, p. 197. This "determination" fixed both an hour rate and a piece-work rate, compelling the latter to be paid to outworkers. The intention was that the two should be equivalent, but employers in practice found the hour, or wages, rate much the cheaper. The ex-inspectress added: "When the wages rate and the piece-work rate were nearly the same, as in the shirt and underclothing trade, the trouble did not occur, and, after ten years' working of the determination, these trades count many outworkers to-day." The choice between an out and an in-worker is affected by the fact that, when employing outworkers, the employer escapes charges for working space, light, firing, and so forth. "The savings upon factory rent, upkeep, and superintendence appear to be larger factors in the cheapness of home work than the lowness of wages" (Black, Makers of our Clothes, p. 44). Cf. also Marconcini, L' industria domesticu salariata (pp. 432-3). On the other hand, of course, economies of superintendence and, sometimes, of power are to be obtained in factory work.

43. [43] Report on Wages Boards, p. 179. Cf. ante, Part III. Chapter XIV. § 8.

44. [44] Cf. Lyttleton, Contemporary Review, February 1909.

45. [45] Fortnightly Review, August 1908, p. 225.

46. [46] Cadbury and Shann, Sweating, p. 124.

47. [47] Cf. Hooker, Statistical Journal, 1894, p. 635 n.

48. [48] Broadhead, State Regulation of Labour in New Zealand, p. 215.

49. [49] Bosanquet, The Strength of the People, p. 71.

50. [50] The Strength of the People, pp. 294-5.

51. [51] For examples of things made by "sweated" workers and consumed by others than wage-earners, cf. Cadbury and Shann, Sweating, p. 123.

52. [52] The reason why this conflict between the interests of a particular class of wage-earners and those of wage-earners as a whole, when the particular class endeavours to force up its rate of wages above the normal, is not generally recognised may well be, as Mr. H. D. Henderson suggests, that most wage movements are associated with trade cycles. In consequence of this, the wage rates of different groups generally move up and down together, and, therefore, to the casual observer, there appears to be a greater harmony of interest than there really is (Supply and Demand, p. 157).

53. [53] Cf. Marshall, Economics of Industry, pp. 372-3.

Part IV, Chapter VI

54. [54] It must be remembered, however, that, if only 500 rich men cut down their consumption of this type of article in a given proportion, the benefit to the poor will be less than half what it would have been had 1000 done so; because what one rich man voluntarily refrains from consuming another rich man, tempted by the resultant lowering of price, may be tempted to bid for. This is, pro tanto, an argument for compulsory (and, therefore, universal), as against voluntary, rationing.

Part IV, Chapter VII

55. [55] Cf. Part I. Chaps. IX.-XI.

56. [56] The analysis which follows was suggested to me by Mr. Ramsey of King's College, Cambridge.

57. [57] In the special case where the demand curve for labour is a straight line the net gain is equal to h(r - ½s); which is necessarily positive, provided that the rate of subsidy is less than twice the rate of contribution to unemployed workmen.

Part IV, Chapter VIII

58. [58] Cf. Carr-Saunders and Jones, Social Structure in England and Wales, p. 158.

59. [59] For an illustration of this among home-working tailoresses cf. Vesselitsky, The Home Worker, p. 17.

60. [60] Report of the Royal Commission on the Poor Laws, Appendix, vol. xxxvi. pp. vi-vii.

61. [61] Cf. ante, Chapter III. § 10. Dr. Hourwick, in his book Immigration and Labour, seems to miss this point; for, having shown that immigrants into the United States do not earn less wages for equally efficient work than native Americans, he treats this conclusion as implying that they do not affect the wages of native Americans.

Part IV, Chapter IX

62. [62] Carver, Social Justice, p. 142.

63. [63] Cf. Cadbury, Experiments in Industrial Organisation, p. 17.

64. [64] Meakin, Model Factories and Villages, p. 27.

65. [65] Preface to Cadbury's Experiments in Industrial Organisation, p. xiii.

66. [66] Principles of Economics, p. 9.

67. [67] Cf. A Study in Public Finance, Part II. chapter x.

68. [68] Annals of the American Academy, 1895, p. 95.

69. [69] If the desire for income to save is decidedly more elastic than the desire for income to spend, the differential tax can be shown to be more restrictive of work than the other; in the converse case it can be shown to be less restrictive. But we have no reason to suppose that the desire for one of these uses is, from a long-period standpoint, much more or much less elastic than that for the other.

70. [70] Cf. ante, p. 666. The possibility that, for some people, a tax on savings might cause more savings to be made is parallel to the possibility that, for some people, a tax on work might cause more work to be done. The maximum amount that could in any circumstances be added to savings or to work is an amount sufficient to discharge the whole tax, in such wise that the taxed persons would be left with the same amount of available income as they would have had if there had been no tax.

71. [71] Essays in Social Justice, p. 323. Professor Fisher even writes: "The ordinary normal self-made American millionaire is rather disposed, I believe, to look on the inheritance of his millions by his children with some misgiving" (Journal of Political Economy, vol. xxiv. p. 711).

72. [72] A. G. Sombart, The Quintessence of Capitalism, p. 173.

73. [73] For a fuller discussion of the comparative effects of various forms of taxation, of. A Study in Public Finance, Part II.

Part IV, Chapter X

74. [74] Economic Journal, 1891, p. 189.

75. [75] "Denmark and its Aged Poor," Yale Review, 1899, p. 15. The following sentence from the first report on the working of the British Unemployment Insurance Scheme is of interest in this connection: "Twenty of our Trade Unions, with an estimated membership of over 86,000 in the (compulsorily) Insured Trades, have begun to make provision for unemployment since the passing of the Act; while other Associations making such provision have much increased their membership" ([Cd. 6965], p. iv.). The help given towards insurance would thus seem to have stimulated private effort.

76. [76] Quoted in Appendix, vol. xvii., to the Report of the Royal Commission on the Poor Laws [Cd. 4690], p. 355.

77. [77] Cf. Report to the Poor Law Commission by Mr. Steel Maitland and Miss Squire, Appendix, vol. xvi. p. 5. The position of widows is, of course, especially likely to be difficult in districts where there is no established women's trade. In such districts "widows left destitute come at once for poor relief and remain throughout their widowhood on the rates." Where opportunities for home work exist, pauperism may be postponed—often at the expense of hours far longer than a proper interpretation of the minimum standard, to be stipulated for in chapter xii., would allow. (Cf. ibid. p. 182.)

78. [78] Report to the Poor Law Commission by Miss Williams and Mr. Jones, Appendix, vol. xvii. p. 334.

79. [79] Loc. cit. Par. 4. The Board's Report on the Working of the Act in 1910 showed that the amount of money actually recovered from parents was insignificant. ([Cd. 5131], p. 9.) This, however, was largely due to the facts (1) that many local Education Boards deliberately limit their provision of meals to necessitous children, and (2) that, when they do not do this, parents who can afford to pay dislike sending their children to meals where no distinction is made between payers and non-payers. (Cf. Bulkley, The Feeding of School Children, pp. 107-9.) In these circumstances not many children whose parents are capable of paying anything are likely to be affected. In respect of lunatics the conditions are different, and considerable contributions from relatives are collected. (Cf. Freeman, Economic Journal, 1911, pp. 294 et seq.) It must be admitted, however, that there are considerable practical difficulties in the way of exacting payment for a service which it is understood will be rendered whether payment is made or not. Further objection is often taken to the device of "recoverable loans," on the ground that they divert energy from industrial effort to attempts at evading payment. As Mrs. Bosanquet observes: "Many a shilling is recklessly wasted, because, if not spent, it will only go to the debt collector" (Economic Journal, 1896, p. 223).

80. [80] Report of the Royal Commission on the Poor Law, p. 231.

81. [81] Loc. cit. p. 110.

82. [82] Loc. cit. p. 207.

83. [83] Practicable Socialism, p. 237.

84. [84] This controversy is presented in a clear-cut form in the Report of the Departmental Committee on Old-Age Pensions [Cmd. 410], 1919. The majority of the Committee recommended that the means limit for pensions should be abolished, but the minority dissented from this recommendation.

85. [85] Cf. Darwin, The Racial Effects of Public Assistance, pp. 13-15.

86. [86] Cf. Brooks's Labour's Challenge to the Social Order, p. 228 et seq.

87. [87] Report of the Poor Law Commission of 1832, p. 161.

88. [88] Ibid. p. 162.

89. [89] Report of the Committee on Distress from Want of Employment, quoted by Beveridge, Unemployment, p. 153.

90. [90] Cf. Dawson, The Vagrancy Problem, p. 136.

91. [91] Ibid. p. 179.

92. [92] Ibid. p. 193.

93. [93] Report of the Departmental Committee on Vagrancy, vol. i. p. 59.

Part IV, Chapter XI

1. [1] Knoop, Principles of Municipal Trading, p. 266.

2. [2] Ibid. p. 213.

3. [3] Knoop, Principles of Municipal Trading, p. 266.

4. [4] Cf. ante, Part IV. Chapter V. § 7.

Part IV, Chapter XII

5. [5] Report of the Royal Commission on the Poor Laws, Appendix, vol. xxxii. p. 17.

6. [6] It should be noted that, if the transference is very large, the resultant shortage of material capital may cause the rate of interest to increase appreciably; and that then the advantage of investment in the capacities of the poor will have to be balanced against the advantage of investment in machines yielding this increased rate.

7. [7] On the continent of Europe, "the Farm Colonies, as distinguished from penal workhouses, do not, in general, receive the genuine unemployed, i.e. those who are out of work against their will. The great majority of the frequenters are the shiftless loafers, who, in the severer seasons of the year or in times of special distress, seek the shelter they offer rather than expose themselves to continued want or run the risk of entering the penal workhouse" (Bulletin of the United States Bureau of Labour, 1908, No. 76, p. 788).

8. [8] Cf. Webb, English Local Government, vol. iv. p. 692.

9. [9] Cf. Report on The Transference of Functions of Poor Law Authorities [Cd. 8917], p. 26.

10. [10] Royal Commission on the Poor Laws, Minority Report, p. 867.

11. [11] Journal of the Royal Statistical Society, June 1913, p. 692.

12. [12] Life in an English Village, p. 287.

13. [13] Has Poverty diminished! pp. 24-5.

14. [14] Royal Commission on the Poor Laws, Report, p. 620.

15. [15] Ibid. p. 187.

16. [16] Cf. Bulkley, The Feeding of School Children, p. 179.

17. [17] Royal Commission on the Poor Laws, Appendix, vol. xx. pp. 23-7.

18. [18] Royal Commission on the Poor Laws, Report, p. 188.

19. [19] Marshall, Principles of Economics, p. 213. Furthermore, it should be noticed that such a policy will react to the advantage even of those members of the manual working class who are not directly touched by the improved educational opportunities; for it will both increase the demand for their services, by increasing the number of persons capable of acting as business managers, and also diminish the supply of their services by withdrawing these men from among them.

20. [20] [Cd. 5131], p. 5.

21. [21] "Physical Degeneration and the Poverty Line," Contemporary Review, Jan. 1904, p. 72.

22. [22] Cf. Clapham, Cambridge Modern History, vol. x. p. 753.

23. [23] "The Backward Art of Spending Money," American Economic Review, No. 2, p. 274.

24. [24] It may possibly be objected that of £100 invested in industry, £50 or more goes as wages, and, therefore, is also invested in the poor. This is a misconception. When £100 is invested in industry, £100 worth of labour and tools is devoted to making machinery: when it is invested in the persons of poor people, £100 worth of labour and tools is devoted to making consumable goods for their use.

25. [25] Royal Commission on the Poor Laws, Majority Report, p. 102.

26. [26] Ibid. p. 267.

27. [27] Royal Commission on the Poor Laws, Minority Report, p. 750.

28. [28] Practicable Socialism, p. 104.

29. [29] Cf. Mr. Snowden's Report of the Local Government Board on Guilds of Help [Cd. 5664].

Part IV, Chapter XIII

30. [30] The Measurement of Social Phenomena, p. 173.

31. [31] Cf. Henderson, Industrial Insurance in the United States, p. 301.

32. [32] Report, p. 15.

33. [33] It is sometimes suggested that those very improvements in the capacity of labour, which have been discussed in previous parts of this book, are calculated to push some men below the minimum standard. It is true, as a point of analysis, that increased capacity of labour is, in effect, equivalent to an addition to its supply, and, therefore, involves a slight reduction in the real wage of a labour unit of given quality. In view, however, of the elastic character of the demand for labour in general, the number of the unimproved men whom this change would push over the line of self-support would almost certainly be very small.

34. [34] This is the term employed by the Majority Commissioners of the 1909 Report on the Poor Laws.

35. [35] Cf. Bowley, The Division of the Product of Industry, pp. 20 et seq.

36. [36] The International Labour Conference of 1919, in framing its convention on Women's Employment, aimed at a high standard. On each separate provision of the Convention it fell behind the practice of some countries, but the existing law of no country covered the whole requirement of the Convention (G. Hetherington, International Labour Legislation, p. 90).

37. [37] For a summary of a number of laws on this matter, cf. Grunzel, Economic Protectionism, pp. 281 et seq.

Appendix I

38. [38] Cf. ante, pp. 161-2, footnote.

39. [39] Cf. Marshall, Industry and Trude, p. 255.

40. [40] Bowley, Elements of Statistics, p. 305.

41. [41] This circumstance, of course, permits the release, partly for immediate consumption and partly for investment, of resources which must otherwise have been stored. For example, the combination of the community's gold reserves in a central bank lowers the amount of aggregate gold reserve necessary, increases the capital available for investment, and pro tanto lowers the rate of interest. (Cf. H. Y. Brown, Quarterly Journal of Economics, 1910, pp. 743 et seq.)

42. [42] Industry and Trade, p. 256.

43. [43] The Nature and Necessity of Interest, p. 126.

44. [44] Inglis, Report of the Board of Trade Railway Conference, 1909, p. 33.

45. [45] Iles, Inventors at Work, p. 483.

Appendix II

46. [46] Principles of Economics, pp. 109 et seq.

47. [47] Professor Moore, in his Economic Cycles (chapters iv. and v.), makes calculations of the "elasticity" of demand for certain commodities without resort to the allowances stipulated for in the text. But, as he himself fully recognises, the elasticity, which his method enables him to measure, is not the same thing as, and is not, in general, equal to, the elasticity of demand as defined by Marshall and employed here. Marshall's elasticity, if known, would make it possible to predict how far the introduction of a new cause modifying supply in a given manner would affect prices; Professor Moore's to predict with what price-changes changes in supply coming about naturally, in company with such various other changes as have hitherto been found to accompany them, are likely to be associated. That this distinction is of great practical importance is shown by the fact that, whereas the elasticity of the demand for pig-iron, in Marshall's sense, is, of course, negative—that is to say, an increase in supply involves a fall in price—the elasticity in Professor Moore's sense, as calculated from his statistics, is positive. The reason for this is that the principal changes in the price of pig-iron that have in fact occurred are mainly caused by expansions of demand (general uplifts in the demand schedule), and not by changes in supply taking place while the demand schedule is unaltered. In certain conditions it might be possible to derive Marshall's elasticity from Professor Moore's elasticity, provided that the reactions exercised by supply changes upon prices could be presumed to take place very rapidly. Apart from this presumption derivation would be impossible, however ample the statistical material.

48. [48] Economic Journal, 1914, pp. 212 et seq.

49. [49] The direct method and any possible indirect method are seriously hampered by the fact that the elasticity of demand for a thing may be different in respect of different amounts. Thus suppose we start with a consumption A at a price P: that the price rises by p per cent, and that this rise is the direct and sole cause of a fall in consumption of a per cent. We cannot infer that the elasticity of demand either for consumption A or for consumption is equal to unless p is small—strictly unless it is infinitesimal. If p is not small, some assumption as to the relation of neighbouring elasticities must be made before any inference can be drawn. One possible assumption is that the demand curve is a straight line. On this assumption the elasticity of demand in respect of consumption A will be : and in respect of consumption it will be . Another possible assumption is that the elasticity of demand is constant for all amounts of consumption from A to . On this assumption it can be proved, as Dr. H. Dalton has pointed out to me, that the said elasticity is not but

This must lie between and : and is probably not far from

50. [50] Strictly, of course, such a change must involve some alteration in the marginal desiredness of money, unless the demand for the commodity in question has an elasticity equal to unity. If the elasticity is anything other than this, a change in the consumption of the commodity will be accompanied by a transference of money from expenditure upon it to expenditure upon other things, or vice versa. This must affect the marginal desiredness of money spent on these things, and its marginal desiredness, if affected in one field, is, since it must be the same in all, affected in all.

51. [51] Professor Vinci, in his very interesting monograph L' elasticità dei consumi, suggests that the method described above can be extended to yield an absolute measure of elasticity by reference to the distinction between nominal and real prices. The money price paid by the higher income group is the same as that paid by the lower income group. But the real price is, he holds, less than this, in the proportion in which the income of the higher income group exceeds that of the lower. Thus, if the higher income group has 10 per cent more income, an equal money price paid by it implies a real price 10/11ths as great; and the elasticity of demand is obtained by dividing a virtual price difference of 1/11th into whatever fraction represents the associated consumption difference (loc. cit. p. 22). This procedure is, however, illegitimate, because, on the assumptions taken, the virtual price of all commodities to the higher income group is 10/11ths of what it is to the lower income group. Consequently, the difference in the consumption of any particular commodity is not due solely to the difference in price of that commodity, and cannot, therefore, in general, be inserted in the formula for elasticity of demand. Professor Vinci has, in fact, tacitly assumed that the marginal desiredness of money is equal for the two groups—an assumption which would only be warranted if the demand of both for the sum of commodities other than the particular one under investigation had an elasticity equal to unity.

52. [52] Cf. my article "A Method of Determining the Numerical Value of Elasticities of Demand," Economic Journal of December 1910.

Appendix III

53. [53] Cf. ante, Part II. Ch. XI.

54. [54] Marshall's statements about his "representative firm" show that this is conceived as an "equilibrium firm." But it is also something more. It is a firm of, in some sense, average size. Marshall pictures it as a "typical" firm, built on a scale to which actual firms tend to approximate; for some purposes he suggests that it might be well to picture to ourselves several different typical firms, one, for example, in the company form, another, probably smaller, in the private business form. That this conception is appropriate to actual conditions is well shown by the studies of the sizes of a number of actual businesses carried out in 1914 by Sir Sydney Chapman and Mr. Ashton. They conclude: "Generally speaking, there would seem to exist in industries, or branches of industries, of adequate size, under given sets of conditions, a typical or representative magnitude to which businesses tend to grow, typical proportions between their parts and typical constitutions.... As there is a normal size and form for a man, so, but less markedly, are there normal sizes and forms of businesses." (The sizes of businesses mainly in the textile industry. Statistical Journal, 1914, p. 512.) This is not surprising. For, if we so far abstract from reality as to suppose that there are large numbers of people of each grade of managing ability, each industry will tend to call to its firms men of that grade whose "comparative efficiency" is greatest there. If y be the output of the industry, x the output of the typical firm, and F(x,y) the total cost to that firm of its output, F will be a definite function determined by technical conditions, and for any assigned value of y, x will be given by the equation

For my more limited purpose, however, it is not necessary to postulate that there is any representative or typical size of firms. Firms might be of all varieties of size, not concentrated about any norm. All that is required is that one firm is—or, rather, that the conditions are such as to make it possible for one firm to be—an "equilibrium firm" in the sense defined above.

55. [55] The argument here would have a slightly different form if marginal additive cost were the relevant form of marginal cost, but the result would be the same. Cf. post, footnote (2) to § 14.

56. [56] It will be noticed that neither the preceding argument nor the condition set out in § 3, that the tendency of the various non-equilibrium firms to expand and to contract must balance one another, necessarily implies that the supply price is equal to the average cost of the industry as a whole.

57. [57] We could, of course, if we wished, draw more complicated figures, in which the curves should reverse their direction of movement more than once, but no new principle would be brought to light by this proceeding.

58. [58] It does not forbid it if the firm's supply schedule is of the type depicted in Fig. 3 and if OM in the figure constitutes a large proportion of the total output which the market is capable of absorbing at a price PM; for in those conditions the one firm may make an abnormal profit without calling new competitors into the field.

59. [59] This matter is best elucidated by means of a diagram. Let DD' be the demand curve, SSm the curve of marginal costs, and SSa the curve of average costs of a one-firm industry. Let OM units be produced and sold at a price PM, where P is the point of intersection between DD' and SSa. If the industry were to increase its output beyond OM, say to ON, the extra units would cost less than PM per unit to produce. But, nevertheless, on the assumption that all units are sold at the same price, ON units could not be sold at a less price than QN without involving the industry in a loss. Since, however, the portion of DD' that is to the right of P necessarily lies below SSa, it is impossible for an output ON to be sold at a price as high as QN. Hence, if the industry expands its output beyond OM, it will make a loss; and, therefore, it has no tendency to expand. When the curves SSm and SSa represent the circumstances of one equilibrium firm among many firms, the position is quite different. It is not now proper to draw a demand curve of the form of DD'. The price in the market would be absolutely unaltered by an expansion on the part of the equilibrium firm if its expansion were balanced by the corresponding contraction in other firms, and approximately unaltered—the equilibrium firm being supposed small relatively to the industry as a whole—if the output of other firms remained unchanged. Therefore the equilibrium firm could expand to ON and still sell at approximately the old price PM. Thus it could sell an enlarged output at more than the average cost of that output, and so make a gain. Hence, for one firm among many others, a state of things in which the supply price of the industry is equal to the average cost of the equilibrium firm, but greater than its marginal cost, is not a state of equilibrium

60. [60] It should be noted that, when, in one-firm industries, actual investment differs from ideal investment, the grounds for this divergence cannot be translated into terms of a difference between marginal social and marginal private net products. Since there is only one firm these two net products necessarily coincide. The ground of divergence, when such exists, is that, owing to the absence of competition, marginal private (which is here equal to marginal social) net product is not equal to average net product. If the one-firm industry is making normal profits, the value of the average net product is equal to the value of the marginal social net product in the imaginary central industry of Part II. Ch. XI. § 1: and, therefore, the value of the marginal social net product in the one-firm industry is not equal to that value.

61. [61] Cf. Part II. Ch. XI. § 13.

62. [62] In conditions such that a simple monopoly would sell in market A only, while a discriminating monopoly would sell in B also, it can easily be shown that the introduction of discrimination will affect consumption and price in A as follows. Under constant supply price both will remain unchanged; under increasing supply price consumption will be diminished and price increased; under decreasing supply price consumption will be increased and price diminished. These considerations are of practical importance to a government considering whether native cartels should be allowed to sell abroad at less than the home price.

End of Notes

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