The Economics of Welfare
By Arthur C. Pigou
WHEN a man sets out upon any course of inquiry, the object of his search may be either light or fruit—either knowledge for its own sake or knowledge for the sake of good things to which it leads. In various fields of study these two ideals play parts of varying importance. In the appeal made to our interest by nearly all the great modern sciences some stress is laid both upon the light-bearing and upon the fruit-bearing quality, but the proportions of the blend are different in different sciences. At one end of the scale stands the most general science of all, metaphysics, the science of reality. Of the student of that science it is, indeed, true that “he yet may bring some worthy thing for waiting souls to see”; but it must be light alone, it can hardly be fruit that he brings. Most nearly akin to the metaphysician is the student of the ultimate problems of physics. The corpuscular theory of matter is, hitherto, a bearer of light alone. Here, however, the other aspect is present in promise; for speculations about the structure of the atom may lead one day to the discovery of practical means for dissociating matter and for rendering available to human use the overwhelming resources of intra-atomic energy. In the science of biology the fruit-bearing aspect is more prominent. Recent studies upon heredity have, indeed, the highest theoretical interest; but no one can reflect upon that without at the same time reflecting upon the striking practical results to which they have already led in the culture of wheat, and upon the far-reaching, if hesitating, promise that they are beginning to offer for the better culture of mankind. In the sciences whose subject-matter is man as an individual there is the same variation of blending as in the natural sciences proper. In psychology the theoretic interest is dominant—particularly on that side of it which gives data to metaphysics; but psychology is also valued in some measure as a basis for the practical art of education. In human physiology, on the other hand, the theoretic interest, though present, is subordinate, and the science has long been valued mainly as a basis for the art of medicine. Last of all we come to those sciences that deal, not with individual men, but with groups of men; that body of infant sciences which some writers call sociology. Light on the laws that lie behind development in history, even light upon particular facts, has, in the opinion of many, high value for its own sake. But there will, I think, be general agreement that in the sciences of human society, be their appeal as bearers of light never so high, it is the promise of fruit and not of light that chiefly merits our regard. There is a celebrated, if somewhat too strenuous, passage in Macaulay’s Essay on History: “No past event has any intrinsic importance. The knowledge of it is valuable, only as it leads us to form just calculations with regard to the future. A history which does not serve this purpose, though it may be filled with battles, treaties and commotions, is as useless as the series of turnpike tickets collected by Sir Matthew Mite.” That paradox is partly true. If it were not for the hope that a scientific study of men’s social actions may lead, not necessarily directly or immediately, but at some time and in some way, to practical results in social improvement, not a few students of these actions would regard the time devoted to their study as time misspent. That is true of all social sciences, but especially true of economics. For economics “is a study of mankind in the ordinary business of life”; and it is not in the ordinary business of life that mankind is most interesting or inspiring. One who desired knowledge of man apart from the fruits of knowledge would seek it in the history of religious enthusiasm, of martyrdom, or of love; he would not seek it in the market-place. When we elect to watch the play of human motives that are ordinary—that are sometimes mean and dismal and ignoble—our impulse is not the philosopher’s impulse, knowledge for the sake of knowledge, but rather the physiologist’s, knowledge for the healing that knowledge may help to bring. Wonder, Carlyle declared, is the beginning of philosophy. It is not wonder, but rather the social enthusiasm which revolts from the sordidness of mean streets and the joylessness of withered lives, that is the beginning of economic science. Here, if in no other field, Comte’s great phrase holds good: “It is for the heart to suggest our problems; it is for the intellect to solve them…. The only position for which the intellect is primarily adapted is to be the servant of the social sympathies.”… [From the text]
First Pub. Date
London: Macmillan and Co.
The text of this edition is copyright © 1932. This book is available through Transaction Publishers, Inc. Direct all requests for permissions and copyrights to Transaction Publishers, Inc.
- Preface to the Third Edition
- Note to the Fourth Edition
- Part I, Chapter 1
- Part I, Chapter 2
- Part I, Chapter 3
- Part I, Chapter 4
- Part I, Chapter 5
- Part I, Chapter 6
- Part I, Chapter 7
- Part I, Chapter 8
- Part I, Chapter 9
- Part I, Chapter 10
- Part I, Chapter 11
- Part II, Chapter 1
- Part II, Chapter 2
- Part II, Chapter 3
- Part II, Chapter 4
- Part II, Chapter 5
- Part II, Chapter 6
- Part II, Chapter 7
- Part II, Chapter 8
- Part II, Chapter 9
- Part II, Chapter 10
- Part II, Chapter 11
- Part II, Chapter 12
- Part II, Chapter 13
- Part II, Chapter 14
- Part II, Chapter 15
- Part II, Chapter 16
- Part II, Chapter 17
- Part II, Chapter 18
- Part II, Chapter 19
- Part II, Chapter 20
- Part II, Chapter 21
- Part II, Chapter 22
- Part III, Chapter 1
- Part III, Chapter 2
- Part III, Chapter 3
- Part III, Chapter 4
- Part III, Chapter 5
- Part III, Chapter 6
- Part III, Chapter 7
- Part III, Chapter 8
- Part III, Chapter 9
- Part III, Chapter 10
- Part III, Chapter 11
- Part III, Chapter 12
- Part III, Chapter 13
- Part III, Chapter 14
- Part III, Chapter 15
- Part III, Chapter 16
- Part III, Chapter 17
- Part III, Chapter 18
- Part III, Chapter 19
- Part III, Chapter 20
- Part IV, Chapter 1
- Part IV, Chapter 2
- Part IV, Chapter 3
- Part IV, Chapter 4
- Part IV, Chapter 5
- Part IV, Chapter 6
- Part IV, Chapter 7
- Part IV, Chapter 8
- Part IV, Chapter 9
- Part IV, Chapter 10
- Part IV, Chapter 11
- Part IV, Chapter 12
- Part IV, Chapter 13
- Appendix I
- Appendix II
- Appendix III
§ 1. OUR next problem has to do with the relation between economic welfare, as reflected through the size of the national dividend, and workpeople’s hours of labour. The effect of improved shift systems, under which, with any given hours for workpeople, the hours for the employers’ machinery are prolonged, and, therefore, the quantity of machinery required to maintain a given output correspondingly reduced, will not be discussed here. It is evident that, after a point, an addition to the hours of labour normally worked in any industry would, by wearing out the workpeople, ultimately lessen, rather than increase, the national dividend. Physiology teaches that, after a certain period of work of given intensity, the body requires a certain interval of rest in order to return to its initial state, and that this interval grows more rapidly than the period of work. Failing adequate intervals, our faculties become progressively blunted. The extra nourishment that enlarged earnings afford cannot be properly digested and yield little benefit. “Fatigue so closes the avenues of approach within that education does not educate, amusement does not amuse nor recreation recreate.”
*60 Furthermore, besides this direct injury to efficiency, indirect injury also comes about, in so far as recourse to stimulants or unhealthy forms of excitement is induced by the fact of exhaustion.
*61 As a result, output suffers both from lost time, due to slacker attendance and unpunctuality, and from diminished vigour and application throughout the working spell. Of course the exact length of working day, beyond
which an increase would contract the national dividend, varies with the climate. In very hot countries it may be more productive to work at low intensity for long hours, and in colder countries, where the food consumed is of a different kind, at high intensity for short hours.
*62 It also varies with the class of workpeople affected. Children and women, particularly women who, besides industrial work, have also the burden of looking after their homes, can, in general, stand less than adult men. Further leisure for them yields a bigger return—for children in opportunities for healthy sleep and play, for women in opportunities for better care of their homes.
*63 An important factor, too, is the kind of work that is done. Long hours of heavy muscular exertion and mental or nervous strain are much more injurious to efficiency than long hours of mere mild attention. Again, workers earning good money will be better nourished, and so likely to be able to stand more, than very poor workers. Yet again, the effects will vary according to the way in which the workpeople spend their leisure, whether in mere dissipation or in hard work on gardens of their own or in true recreation. It will also vary according as the shortened hours do or do not lead to greater intensity of effort and consequent strain during the hours that are worked—a matter which depends partly on whether wages are paid by piece or by time, partly on whether the work is of a sort that can be speeded up by improved ways of working or only by greater exertion, and partly upon whether or not the intervals of rest and the hour of starting work are based on careful tests of what best promotes efficient working.
*64 In view of these considerations it is clear that no general statement as to the relation between hours of labour and the national dividend can be made. The relation will be different for different types of workpeople and different kinds of work. “Where output is controlled mainly by machinery the loss [due to long hours]
may be small. Where it depends more especially upon the worker it will be great. Purely mechanical work can sometimes be performed sufficiently well by tired men. Skilled work calling for judgment and discretion demands freshness and vigour.”
*65 It must be remembered, indeed, that even the feeding of a purely automatic machine can be done with greater or less regularity and completeness, and that the
number of machines which can be entrusted to the control of an unfatigued worker is larger than can be entrusted to a fatigued one.
*66 The essential point, however, is that, in each several industry, for each class of workers there is
some length of working day the overstepping of which will be disadvantageous to the national dividend. A detailed official investigation into the condition of munition workers in 1916 led the investigators to conclude that the hours of work yielding maximum output were, for men on “very heavy work” about 56 hours a week, for men on “heavy work” about 60 hours, for men on “light work” about 70 hours, for women on “moderately heavy” work 56 hours, and for women on “light work” 60 hours.
*67 It must be remembered, however, that, as the investigators point out, their
data relate to those fittest persons among would-be munition workers, who did not drop out from the strain. Moreover, since in peace time workers naturally expect to have some surplus energy left for hobbies and amusements after their work is over, whereas in war time they may be ready to exhaust themselves completely, long hours in peace time are likely to cause more serious slackening of effort in each hour than they do in war time.
*68 “Hence the
best hours for work, suited for peace-time, are in every case considerably shorter than those mentioned.”
Prima facie it might be thought that this conclusion is of academic rather than of practical importance, because the self-interest of employers and workpeople must prevent unduly long hours from being worked. There is, however, a large
volume of experience, which contradicts this optimistic view and suggests that private self-interest has often seriously failed in this matter. It is not necessary to invoke the terrible history of the early days of the factory system. In quite recent times Dr. Abbe of the Zeiss works maintained, on the strength of experiments conducted by himself, that, among at least three-quarters of all industrial workers, a greater absolute product—not merely a greater product per hour—may be expected from regular work of between 8 and 9 hours a day than from regular work of any longer period.
*70 In his own works, “in 253 different kinds of work, he found that a 4 per cent larger output was obtained in nine hours [than in ten], using exactly the same machinery”;
*71 and a number of similar instances are on record from elsewhere both before and during the period of the war.
*72 It is, indeed, very difficult to draw confident conclusions from even the most careful experiments in this field. For the results will be misleading; (1) if the extra output per hour that is obtained is due to a mere spurt by men temporarily on their mettle, and not to a real increase of efficiency; (2) if the reduction of hours has been accompanied by improvements in the general organisation of the business,
e.g. by the substitution of a three-shift for a two-shift system, involving an increase of from, say, a 15-hour to a 24-hour day for the machinery employed; or (3) if the reduction of hours has attracted to the experimenting works a grade of workmen superior to those formerly employed there. In spite, however, of these and other difficulties,
*73 the evidence is fairly conclusive that hours of labour in excess of what the best interests of the national dividend require have often in fact been worked. This inference is strengthened when we reflect that any distant effect, which shorter hours may have in prolonging the working life of the persons concerned, cannot be displayed in these experiments.
§ 3. At first sight it is difficult to understand by what
process this state of affairs can be brought about: for it would seem to be contrary to the interest both of the workpeople and also of the employers to allow hours to be worked in excess of those that promote the largest production. The apparent paradox is, however, easily explained. First, workpeople, in considering for what hours per day they will consent to work, often fail to take account of the damage that unduly long hours may do to their efficiency. Their lack of forethought in this matter is on a par with the general inability of all classes adequately to foresee future happenings
in themselves, as distinguished from future happenings
to themselves. Secondly, employers also often fail to realise that shorter hours would promote efficiency among their workpeople, and so would redound to their own interest. Thirdly—and this, on their side, is the principal thing—except in firms which possess a practical monopoly in some department of industry, and so expect to retain the same hands permanently, the lack of durable connection between individual employers and their workpeople makes it to the employers’ interest to work longer hours than are in the long run to the interest of production as a whole. This point was well brought out in some remarks of an employer who has successfully undertaken many schemes for the welfare of those whom he employs. “The employer as such,” he said, “is not primarily interested in keeping labour in excellent condition. What he wants is a sufficient supply of efficient labour to meet his immediate demands; and, though ultimately this supply will be curtailed unless the whole nation allows a margin for wear-and-tear and for the stimulation of progressive efficiency, he cannot afford, under our present competitive system, to take a very long view. He can act with others, but not much in advance of them. In so far then as he represents immediate and limited, rather than ultimate and general, interests, his economic outlook must stand in marked contrast to that of the nation as a whole.”
*74 This identification of the employers’ interest with immediate, rather than with ultimate, output is especially important for the following reason. Where mobility and trade union
organisation are imperfect, and where, therefore, as will be shown when we come to discuss “unfair wages,” there is some range of indeterminateness in the bargain between an employer and his workpeople, the employer’s bargaining power, as against his workpeople, is greater in the matter of hours of labour than it is in the matter of wages. For, whereas a workman striving to get better wages has only, as it were, to lift his own weight, it is, as a rule, impossible, for technical reasons, that any concession about the hours of labour should be made to him that is not general in character, and, therefore, less willingly granted. Moreover, if an employer succeeds in exploiting his workpeople in the matter of wages, the poverty, which he thus induces in them, will often make them
willing to work for longer hours. It follows that, when exploitation is present at all, it is extremely likely to make itself felt in hours of labour too long for the best interests of the national dividend. The effect will be bad everywhere, but especially bad where the persons affected are women and young persons, whose aggregate efficiency throughout life is liable to suffer greatly from overstrain in youth.
§ 4. Moreover, in this matter it is misleading to confine attention to the effect produced on the national dividend. For, in general, the working day, whose length is adapted to maximise production over a long period, is not, given the existing distribution of wealth between workpeople and others, the
right working day from the standpoint of economic welfare. What economic welfare requires is that workpeople should work for such hours per day that the wages due to the last hour—when account is taken of the fact that every extra hour worked lessens the opportunity for enjoying whatever purchases their wages may enable them to make—shall just compensate them for the unpleasantness of longer hours. There is a presumption that the working day which would satisfy this condition will be considerably shorter than the working day which would maximise production even in the long run. If then, as we have shown, the play of normal economic forces is liable to make the working day too long for the best interests of the national dividend,
a fortiori it is liable to make it too long for the best interests of economic welfare.
§ 5. What has been said is sufficient to constitute a
prima facie case for State intervention. This case, however, cannot be regarded as established, even in respect of badly organised industries where the danger of exploitation by employers is not countered by strong Trade Union action, until the possibility of evasions of the law has been considered. In laws about wages, as will appear presently, this point is of great practical importance. For example, when it is proposed to force up wage rates on the ground that an increase of pay would soon produce a corresponding increase of capacity, it can be objected that, since the reaction on capacity will not be immediate, employers will be tempted by an enforced increase in the wage rate to dismiss those workpeople who are not already worth what they are called upon to pay. But against proposals to reduce hours of labour this class of objection does not hold good. Provided that the hourly rate of wages is not raised, a shortening of the hours of labour does not, at all events until there has been time for it to bring about a reduction in the mechanical equipment of factories, make it to the interest of employers to employ fewer workpeople than before. It follows that a sufficient interval will be allowed, as it will not always be allowed when wage rates are increased, for the improvements in capacity, which they tend to produce, to work themselves out. This means that, by the time the danger of dismissals has become real, capacity will often be so far improved as to neutralise and abolish it. This consideration is important, but it is not, of course, decisive. It is still necessary to consider how far governmental authorities are competent to frame the delicately adjusted regulations which analysis shows to be desirable. Hitherto, the basis of systematic knowledge, upon which policy should be built up, has been small, and there is wide scope for further study. Meanwhile, it may be agreed that the general principle underlying legislation to limit the hours of work in industry is sound. The movement, which advanced with remarkable rapidity in many countries during the earlier post-war years, to fix a general maximum of eight hours a day in all industries, subject to certain special exceptions, may well be justified
on broad social grounds. But it is very important that the different needs of different classes of workers should be recognised, and that the general maximum should not tend to become a general minimum also.
§ 6. One further aspect of this matter has to be considered. It is plain that, whatever limitation is imposed, it cannot be made absolutely rigid; because, if this were done, work would be prevented on some occasions when the immediate need for it was so urgent as to outweigh any indirect consequences. Certain materials, for example, become fit for use for a brief space only, and, if they are not worked upon then, are absolutely wasted. A good example is the fruit used in the fruit-canning industry. To refuse permission for occasional excessive hours of work in this industry might mean, from time to time, the total loss of very valuable crops.
*75 Certain forms of repair work are in a similar position. They are urgent, in the sense that they must be executed
at once on pain of very serious loss. It is evident that, when conditions of this kind prevail, some relaxation from rigid rules should be made, whether the authority behind these rules be legislation or a collective agreement between a Trade Union and an Employers’ Federation. In other words, some amount of overtime beyond the hours normally permitted should
sometimes be permitted. But it is very important that this concession should not be abused. It must be clearly understood that overtime is often injurious, even though it be followed by an equivalent period of slack time. “During overtime leisure and rest are cut down at the very same time that heavier and longer demands are made upon the human organism. It is practically inevitable that the metabolic balance should be thrown out of gear…. There is no rebound, or an infinitely slow one, when our elastic capacities have been too tensely stretched. It takes much more time, rest, repair than the working-girl can possibly afford to make good such metabolic losses. Compensation—off-time—comes too late…. After a doubled task muscle requires,
not double, but four times, as long a rest for recuperation, and a similar need for more than proportionally increased rest after excessive work is true also of our other tissues and of our organism in its totality.”
*76 “When once an individual has, through labour during ordinary hours, reached a certain degree of fatigue, and proceeds to further labour (overtime) without taking the repose necessary to dissipate the fatigue already produced, this further labour has a greater physiological effect and exhausts the organism more than would a similar amount of labour performed when fatigue was absent.”
*77 These injurious effects follow from overtime work, in all industries where the normal hours already approach the maximum compatible with full efficiency, however cogent the excuses for it may be. The excuses offered should always, therefore, be scrutinised with very great care. In the conduct of this scrutiny it is essential to bear in mind that the immediate damage, which the prohibition of overtime would bring about, is often in fact much smaller than it appears to be at first sight. For, first, in so far as pressure upon one set of firms in an industry occurs when other firms are slack, the prohibition need not kill the work they would have done, but may lead to its being given out, either on commission or by direct order, to other firms. Secondly, in industries that manufacture goods capable of being made for stock, prohibition of overtime in periods of general boom will, indeed, directly lessen the hours of work done in these periods, but it will also indirectly increase the hours of work done in antecedent periods of depression. Furthermore, in this connection, the notion “making for stock” should be given a significance more extended than usual. Articles which have to be manufactured to individual order are not capable of being made for stock in the ordinary sense. But, in so far as they are capable of being stored prior to need by their purchasers, they ought to be so regarded from the present point of view. It is this class of commodity that the Minority of the Poor Law Commissioners had
in view when they wrote: “The variations in the consumers’ pressure can be made much less extreme by means of a legal limitation of the hours of labour. When the hours of cotton operatives were settled by the individual mill-owner, cotton-spinning and weaving were extreme instances of seasonal trades; and the manufacturer was unable to resist the customers’ insistence on instant delivery. Now that the maximum hours are legally fixed, the buyer has learnt to be more regular in his demands. The extreme seasonal irregularity of the London dressmaking trade would undoubtedly be mitigated, if dressmakers were absolutely prevented from working more than a fixed maximum day. Customers would simply not be able to insist on delivery in an unreasonably short time.”
*78 As a result, the output produced in
antecedent times would be increased, thus partly offsetting the diminution of output directly consequent upon the diminution of overtime in periods of boom. Thirdly, there are certain things, whether or not they are capable of being made for stock in any sense, the demand for which can be
postponed for a substantial period. Commodities and services that are consumed in a single use do not as a rule fall into this class. If a desire for bread or beer or doctor’s services or railway travel existing now is not satisfied, that fact does not cause any greater desire for these things to exist in the future than would have existed if it had been satisfied.
Some goods and services, indeed, even of an immediately consumable kind, are subject to demands which can be postponed. For example, a man may wish to do the Grand Tour once in his lifetime; if he cannot do it this year, he will desire to do it next year. But much the most important things for which the demand can be postponed are durable goods, such as boots, clothes, pianos, machinery and houses. The desire for these things is based upon an expectation of services to be rendered by them through a considerable period. Suppose, for example, that a bicycle has a normal life of seven years and that I desire to purchase one now. If I succeed in doing this, I shall have no desire to repeat my purchase next year; but, if I fail, the effect of failure will be to carry over
to next year a demand at least six-sevenths as intense as my present demand. In all industries which make commodities of this class, the check, which the prohibition of overtime puts upon work in boom periods, is partially cancelled by a stimulus to work in
subsequent periods of depression. Against these considerations it is, indeed, necessary to set one upon the other side. If overtime is prohibited, employers may find it to their interest to attach to themselves, through the offer of higher wages, a larger reserve of workpeople than they would otherwise have thought necessary. For, the more extensive this reserve is,-the less likely it is that inability to work overtime will prevent them from fulfilling orders that they would like to fulfil.
*79 When, however, the reserve is large, the workmen comprising the fringe of it are only actually employed during boom periods; in moderate and bad times they are attached in idleness to the industry which commands their services, instead of being employed, as they might otherwise have been, in some different industry. In so far as this happens, restriction of overtime leaves the amount of work done in the industry directly affected substantially unaltered both in boom periods and in depression periods, but makes the amount of work done throughout the whole body of industries smaller than it would otherwise have been in both sorts of period. This form of reaction is specially liable to be set up in industries where casual methods of engaging workpeople prevail. When it is threatened and cannot be, or is not, successfully resisted, the case in favour of close restrictions upon overtime is so far weakened.
Fatigue and Efficiency, p. 284.
Economic Journal, 1909, p. 360.
Report to the League of Nations on Raw Materials and Foodstuffs, 1922, p. 41.
Royal Commission on Labour, Q. 4253.
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).
The Six Hours Day, p. 21.
Handwôrterbuch der Staatswissenschaften, vol. i. p. 1214.
Special Committee on Hours of Labour in Continuous Industries, p. 10.
Use of Factory Statistics in the Investigation of Industrial Fatigue.
Welfare Work, pp. 50-51.
Fatigue and Efficiency, p. 187).
Fatigue and Efficiency, p. 88.
Seasonal Trades, p. 87).
Part III, Chapter VIII