Principles of Political Economy

It may now be objected that, if A is no longer in demand, the laborers in that industry will be thrown out of employment. Out of that employment certainly, but not out of every other. One thousand of Z was able to purchase certain results of labor and capital in industry A, when in the hands of its former owner; and now when in the hands of the crew it will control, as purchasing power, equivalent results of labor and capital. The crew may not want the same articles as the former owner of Z, but they will want the equivalents of 1,000 of Z in something, and that something will be produced now instead of A. The whole process may be represented by this diagram. [Illustration, showing interrelationships between A, Z, and Crew.] 1. Z is exchanged against A, and the crew remain unemployed. 2. Here the crew possess Z, and they themselves exchange Z for whatever A may produce in satisfaction of their wants, and the crew are then employed. It is possible that the intervention of money blinds some minds to a proper understanding of the operations described above. The supposition, as given, applies to a condition of barter, but is equally true if money is used.(110) Imagine a display of all the industries of the world, A, B, C, ... X, Y, Z, presented within sight on one large field, and at the central spot the producer of gold and silver. When Z is produced, it is taken to the gold-counter, and exchanged for money; when A is produced, the same is done. Then the former money is given for A, and the latter for Z, so that in truth A is exchanged against Z through the medium of money, just as before money was considered. Now, it may be said by an objector, “If A is not wanted, after it is produced, and can not be sold, because the demand from Z has been withdrawn, then the capital used for A will not be returned, and the laborers in A will be thrown out of employment.” The answer is, of course, that the state of things here contemplated is a permanent and normal one wherein production is correctly adapted to human desires. If A is found not to be wanted, after the production of it, an industrial blunder has been committed, and wealth is wasted just as when burned up. It is ill-assorted production. The trouble is not in a lack of demand for what A may produce (of something else), but with the producers of A in not making that for which there were desires, from ignorance or lack of early information of the disposition of wealth Z. In practice, however, it will be found that most goods are made upon “orders,” and, except under peculiar circumstances, not actually produced unless a market is foreseen. Indeed, as every man knows, the most important function of a successful business man is the adaptation of production to the market, that is, to the desires of consumers. One other form of this question needs brief mention. It is truly remarked that a large portion of industrial activity is engaged to-day, not in supplying productive consumption, such as food, shelter, and clothing, but in supplying the comforts and luxuries of low and high alike, or unproductive consumption; now, if there were not a demand for luxuries and comforts, many vast industries would cease to exist, and labor would be thrown out of employment. Is not a demand for such commodities, then, a cause of the present employment of labor? No, it is not. Luxuries and comforts are of course the objects of human wants; but a desire alone, without purchasing power, can not either buy or produce these commodities. To obtain a piano, one must produce goods, and this implies the possession of capital, by which to bring into existence goods, or purchasing power, to be offered for a piano. Nor is this sufficient. Even after a man, A, for example, offers purchasing power, he will not get a piano unless there exists an accumulation of unemployed capital, together with labor ready to manufacture the instrument. If capital were all previously occupied, no piano could be made, although A stood offering an equivalent in valuable goods. It may be said that A himself has the means. He has the _wealth_, and if he is willing to forego the use of this wealth, or, in other words, save it by devoting it to reproduction in the piano industry—that is, create the capital necessary for the purpose—then the piano can be made. But this shows again that, not a mere desire, but the existence of capital, is necessary to the production, and so to the employment of labor. An increased demand for commodities, therefore, does not give additional employment to labor, unless there be capital to support the labor. Some important corollaries result from this proposition: (_a._) When a country by legislation creates a home demand for commodities, that does not of itself give additional employment to labor. If the goods had before been purchased abroad, under free discretion, then if produced at home they must require more capital and labor, or they would not have been brought from foreign countries. If produced at home, it would require, to purchase them, more of what was formerly sent abroad; or some must do without. The legislation can not, _ipso facto_, create capital, and only by an increase of capital can more employment result. It is possible, however, that legislation might cause a more effective use of existing capital; but that must be a question of fact, to be settled by circumstances in each particular case. It is not a thing to be governed by principles. (_b._) It follows from the above proposition also that taxes levied on the rich, and paid by a saving from their consumption of luxuries, do not fall on the poor because of a lessened demand for commodities; since, as we have seen, that demand does not create or diminish the demand for labor. But, if the taxes levied on the rich are paid by savings from what the rich would have expended in wages, then if the Government spends the amount of revenue thus taken in the direct purchase of labor, as of soldiers and sailors, the tax does not fall on the laboring-class taken as a whole. When the Government takes that wealth which was formerly capital, burns it up, or dissipates it in war, it ceases to exist any longer as a means of again producing wealth, or of employing labor. Chapter V. On Circulating And Fixed Capital. § 1. Fixed and Circulating Capital. Of the capital engaged in the production of any commodity, there is a part which, after being once used, exists no longer as capital; is no longer capable of rendering service to production, or at least not the same service, nor to the same sort of production. Such, for example, is the portion of capital which consists of materials. The tallow and alkali of which soap is made, once used in the manufacture, are destroyed as alkali and tallow. In the same division must be placed the portion of capital which is paid as the wages, or consumed as the subsistence, of laborers. That part of the capital of a cotton-spinner which he pays away to his work-people, once so paid, exists no longer as his capital, or as a cotton-spinner’s capital. Capital which in this manner fulfills the whole of its office in the production in which it is engaged, by a single use, is called Circulating Capital. The term, which is not very appropriate, is derived from the circumstance that this portion of capital requires to be constantly renewed by the sale of the finished product, and when renewed is perpetually parted with in buying materials and paying wages; so that it does its work, not by being kept, but by changing hands. Another large portion of capital, however, consists in instruments of production, of a more or less permanent character; which produce their effect not by being parted with, but by being kept; and the efficacy of which is not exhausted by a single use. To this class belong buildings, machinery, and all or most things known by the name of implements or tools. The durability of some of these is considerable, and their function as productive instruments is prolonged through many repetitions of the productive operation. In this class must likewise be included capital sunk (as the expression is) in permanent improvements of land. So also the capital expended once for all, in the commencement of an undertaking, to prepare the way for subsequent operations: the expense of opening a mine, for example; of cutting canals, of making roads or docks. Other examples might be added, but these are sufficient. Capital which exists in any of these durable shapes, and the return to which is spread over a period of corresponding duration, is called Fixed Capital. Of fixed capital, some kinds require to be occasionally or periodically renewed. Such are all implements and buildings: they require, at intervals, partial renewal by means of repairs, and are at last entirely worn out. In other cases the capital does not, unless as a consequence of some unusual accident, require entire renewal. A dock or a canal, once made, does not require, like a machine, to be made again, unless purposely destroyed. The most permanent of all kinds of fixed capital is that employed in giving increased productiveness to a natural agent, such as land. To return to the theoretical distinction between fixed and circulating capital. Since all wealth which is destined to be employed for reproduction comes within the designation of capital, there are parts of capital which do not agree with the definition of either species of it; for instance, the stock of finished goods which a manufacturer or dealer at any time possesses unsold in his warehouses. But this, though capital as to its destination, is not yet capital in actual exercise; it is not engaged in production, but has first to be sold or exchanged, that is, converted into an equivalent value of some other commodities, and therefore is not yet either fixed or circulating capital, but will become either one or the other, or be eventually divided between them. § 2. Increase of Fixed Capital, when, at the Expense of Circulating, might be Detrimental to the Laborers. There is a great difference between the effects of circulating and those of fixed capital, on the amount of the gross produce of the country. Circulating capital being destroyed as such, the result of a single use must be a reproduction equal to the whole amount of the circulating capital used, and a profit besides. This, however, is by no means necessary in the case of fixed capital. Since machinery, for example, is not wholly consumed by one use, it is not necessary that it should be wholly replaced from the product of that use. The machine answers the purpose of its owner if it brings in, during each interval of time, enough to cover the expense of repairs, and the deterioration in value which the machine has sustained during the same time, with a surplus sufficient to yield the ordinary profit on the entire value of the machine. From this it follows that all increase of fixed capital, when taking place at the expense of circulating, must be, at least temporarily, prejudicial to the interests of the laborers. This is true, not of machinery alone, but of all improvements by which capital is sunk; that is, rendered permanently incapable of being applied to the maintenance and remuneration of labor. It is highly probable that in the twenty-five years preceding the panic of 1873, owing to the progress of invention, those industries in the United States employing much machinery were unduly stimulated in comparison with other industries, and that the readjustment was a slow and painful process. After the collapse vast numbers left the manufacturing to enter the extractive industries. The argument relied on by most of those who contend that machinery can never be injurious to the laboring-class is, that by cheapening production it creates such an increased demand for the commodity as enables, ere long, a greater number of persons than ever to find employment in producing it. The argument does not seem to me to have the weight commonly ascribed to it. The fact, though too broadly stated, is, no doubt, often true. The copyists who were thrown out of employment by the invention of printing were doubtless soon outnumbered by the compositors and pressmen who took their place; and the number of laboring persons now employed in the cotton manufacture is many times greater than were so occupied previously to the inventions of Hargreaves and Arkwright, which shows that, besides the enormous fixed capital now embarked in the manufacture, it also employs a far larger circulating capital than at any former time. But if this capital was drawn from other employments, if the funds which took the place of the capital sunk in costly machinery were supplied not by any additional saving consequent on the improvements, but by drafts on the general capital of the community, what better are the laboring-classes for the mere transfer? There is a machine used for sizing the cotton yarn to prepare it for weaving, by which it is dried over a steam cylinder, the wages for attendance on which were only two dollars per day, as compared with an expenditure for labor of fourteen dollars per day to accomplish the same ends before the machine was invented. All attempts to make out that the laboring-classes as a collective body _can not_ suffer temporarily by the introduction of machinery, or by the sinking of capital in permanent improvements, are, I conceive, necessarily fallacious.(111) That they would suffer in the particular department of industry to which the change applies is generally admitted, and obvious to common sense; but it is often said that, though employment is withdrawn from labor in one department, an exactly equivalent employment is opened for it in others, because what the consumers save in the increased cheapness of one particular article enables them to augment their consumption of others, thereby increasing the demand for other kinds of labor. This is plausible, but, as was shown in the last chapter, involves a fallacy; demand for commodities being a totally different thing from demand for labor. It is true, the consumers have now additional means of buying other things; but this will not create the other things, unless there is capital to produce them, and the improvement has not set at liberty any capital, even if it has not absorbed some from other employments. If the improvement has lowered the cost of production, it has often required less capital (as well as less labor) to produce the same quantity of goods; or, what is the same thing, an increased product with the same capital. § 3. —This seldom, if ever, occurs. Nevertheless, I do not believe that, as things are actually transacted, improvements in production are often, if ever, injurious, even temporarily, to the laboring-classes in the aggregate. They would be so if they took place suddenly to a great amount, because much of the capital sunk must necessarily in that case be provided from funds already employed as circulating capital. But improvements are always introduced very gradually, and are seldom or never made by withdrawing circulating capital from actual production, but are made by the employment of the annual increase. I doubt if there would be found a single example of a great increase of fixed capital, at a time and place where circulating capital was not rapidly increasing likewise. In the United States, while the cost per yard of the manufactured goods has decreased, and so made accessible to poorer classes than before, the capital engaged in manufactures has increased so as to allow a vastly greater number of persons to be employed, as will be seen by the following comparison of 1860 with 1880 taken from the last census returns. (Compendium, 1880, pp. 928, 930.) Number of Capital Average Total amount establishments. (Thousands). number of paid in hands wages during employed. the year. 1860 140,433 $1,009,855 1,311,246 $378,878,966 1880 253,852 2,790,272 2,732,595 947,953,795 “A hundred years ago, one person in every family of five or six must have been absolutely needed to spin and weave by hand the fabrics required for the scanty clothing of the people; now one person in two hundred or two hundred and fifty only need work in the factory to produce the cotton and woolen fabrics of the most amply clothed nation of the world.”(112) To these considerations must be added, that, even if improvements did for a time decrease the aggregate produce and the circulating capital of the community, they would not the less tend in the long run to augment both. This tendency of improvements in production to cause increased accumulation, and thereby ultimately to increase the gross produce, even if temporarily diminishing it, will assume a still more decided character if it should appear that there are assignable limits both to the accumulation of capital and to the increase of production from the land, which limits once attained, all further increase of produce must stop; but that improvements in production, whatever may be their other effects, tend to throw one or both of these limits farther off. Now, these are truths which will appear in the clearest light in a subsequent stage of our investigation. It will be seen that the quantity of capital which will, or even which can, be accumulated in any country, and the amount of gross produce which will, or even which can, be raised, bear a proportion to the state of the arts of production there existing; and that every improvement, even if for the time it diminish the circulating capital and the gross produce, ultimately makes room for a larger amount of both than could possibly have existed otherwise. It is this which is the conclusive answer to the objections against machinery; and the proof thence arising of the ultimate benefit to laborers of mechanical inventions, even in the existing state of society, will hereafter be seen to be conclusive.(113) Chapter VI. Of Causes Affecting The Efficiency Of Production. § 1. General Causes of Superior Productiveness. The most evident cause of superior productiveness is what are called natural advantages. These are various. Fertility of soil is one of the principal. The influence of climate [is another advantage, and] consists in lessening the physical requirements of the producers. In spinning very fine cotton thread, England’s natural climate gives in some parts of the country such advantages in proper moisture and electric conditions that the operation can be carried on out-of-doors; while in the United States it is generally necessary to create an artificial atmosphere. In ordinary spinning in our country more is accomplished when the wind is in one quarter than in another. The dry northwest wind in New England reduces the amount of product, while the dry northeast wind in England has a similar effect, and it is said has practically driven the cotton-spinners from Manchester to Oldham, where the climate is more equably moist. The full reasons for these facts are not yet ascertained. Experts in the woolen industry, also, explain that the quality and fiber of wool depend upon the soil and climate where the sheep are pastured. When Ohio sheep are transferred to Texas, in a few years their wool loses the distinctive quality it formerly possessed, and takes on a new character belonging to the breeds of Texas. The wool produced by one set of climatic conditions is quite different from that of another set, and is used by the manufacturers for different purposes. In hot regions, mankind can exist in comfort with less perfect housing, less clothing; fuel, that absolute necessary of life in cold climates, they can almost dispense with, except for industrial uses. They also require less aliment. Among natural advantages, besides soil and climate, must be mentioned abundance of mineral productions, in convenient situations, and capable of being worked with moderate labor. Such are the coal-fields of Great Britain, which do so much to compensate its inhabitants for the disadvantages of climate; and the scarcely inferior resource possessed by this country and the United States, in a copious supply of an easily reduced iron-ore, at no great depth below the earth’s surface, and in close proximity to coal-deposits available for working it. But perhaps a greater advantage than all these is a maritime situation, especially when accompanied with good natural harbors; and, next to it, great navigable rivers. These advantages consist indeed wholly in saving of cost of carriage. But few, who have not considered the subject, have any adequate notion how great an extent of economical advantage this comprises.